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Microcap & Penny Stocks : DCI Telecommunications - DCTC Today
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To: Art Vandelay who wrote (10015)10/30/1998 9:25:00 PM
From: Pr-Ac Man  Read Replies (2) of 19331
 
For anyone:

I thought I would throw out some fodder for discussion following up on recent dialogues concerning the role of MM's in maintaining an "orderly market". I'm certainly no expert, so I just offer my thoughts for debate. I was interested by some of Colin's comments concerning implications of MM's obligations. As I understand it, some MM's have the responsibility to maintain reasonable liquidity for a given company's stock. As part of that obligation, a MM may have to resort to tactics such as short selling if supply is low and demand is high, for example. As such, the MM prevents violent swings in price, but as a result may incur large short positions. Obviously, the MM is in business to make money, and they must find a way to cover their shorts without going broke. Thus, we may end up with some apparent "hanky-panky".

My question is this: do we view the MM's as allies, enemies or something else? Is it necessary for MM's to cover their shorts before we can really have an "orderly" increase in price? If MM's are "squeezed" do we create a market that is so volatile that you have to time your exit perfectly to make the big killing? If a price run-up is driven by short covering, then can't the price can crash as quickly as it climbs once the short is covered and the artificial demand is removed?

I don't know the answers to these questions, so I throw them out for you to comment on. But I've been wondering recently if the MM's are as much at odds with us as we sometimes suggest. Any comments?

PA
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