A little more info on the MM's via Alertline:
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Subj: Manipulation in Small stocks explained
Date: 98-07-09 23:04:15 EDT
From: alertline@aol.com (Alertline)
At the request of a subscriber, I am sending this out to explain a little
bit about how some market makers manipulate market in small OTC stocks.
If this is of no interest to you, disregard.
Last Thursday, NTAH traded up to .24 as many of our readers started taking
a position in the stock on our recommendation. As you know trade date + 3
is settlement day.
Unfortunately a fact of life is that Market Makers can
and do manipulate OTC stocks. When most of you enter an order to purchase
an OTC stock your firm does not sell you the stock directly, most of the
firms are "hardwired" to wholesale firms which contact the smaller market
makers who are "coded in" to those particular stocks, (assuming the
whoresalers are not already coded in) these firms small or
the wholesalers, CANNOT turn down a trade, ever, they could I suppose, but
if they did, they would never get the call from that firm again. SO 99% of
the time even though they do not have inventory, they will go ahead and
fill the order. The only way they can do this is by SHORTING the stock to
fill the order. Unlike the rest of us they do not have to borrow the shares
to short, they can just do it.
So lets take a look at the scoundrel ruined
everyones day with NTAH. The name of the firm is J. Alexander Securities,
the name of the trader is Jerry and he works in the Miami office. How do I
know this??? I MAKE IT A POINT TO KNOW! That, and I know a number of market
makers and can pick up the phone and ask whats is really going on in a
number of small stocks, I also have level two (market maker) quotes so I
can watch who does what. Back to the explanation...
Last week Jerry got the
call on probably a few hundred thousand shares that were bought. He filled
those orders. By the end of the day Jerry was "offside"(short) probably
300,000 shares, his short cost (when you short you average up rather than
down) was likely about .21 so Wednesday was settlement date for last
Thursday, and the stock got pummeled. If the stock would have been higher
than his average short cost on closing Wednesday, he would have been losing
money.
So here is what he does: Lets say the stock is 21 bid 22 ask.
He
calls who ever is bid at .21 and says "Yah its Jerry at ALEX, I got 10
(thousand) for sale at .21" The MM says "OK done on 10" he stays at .21 so
Jerry calls him back 20 minutes later and say, "Yeah, I got another 40
there at .21" The other MM say"Ok done on 5 at .21" THEN MOVES THE BID DOWN
TO .20
30 minutes later "Yeah, Jerry again, hey, I got like 50 to go right
at your .20" the other MM cusses, fills 5 then goes to .18 Bid. Jerry sees
this then moves his own bid to .165. 30 minutes go by and Jerry calls him
again and says -- you guessed it-- "Hey I got a total of 60 to go at your
.18" The mm buys 10 of it, then moves to .15 bid. AND KEEP IN MIND NOW
JERRY HAS JUST BEEN SHORTING TO THIS GUY TO GET HIM OUT OF THE WAY Remember
Jerry was at .165 himself. NOW John Q Public, devoted reader of
alertnewsletter.com all this, he starts worrying because he just paid .24 4
days ago, ALERTLINE was recommending so he decided to buy it.. After
commisions at .165 bid, he is down nearly 50% on his money, he just wants
out, he decides to sell and never buy a penny stock again, he places an
order to sell it all, 10 minutes later he finds out that only 5000 of those
shares were filled at .165, now its .15 bid, he try's again, 10 more done,
finally he puts in a market order to sell. mean while Jerry has just
covered 50,000 shares of his short position at profit of .06 per share.
Starting to get the picture???
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Robert... |
