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Strategies & Market Trends : Dave Gore's Trades That Make Sense -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (12373)	9/17/2002 11:26:16 PM
From: The Vet	Respond to of 16631

Did I type NM.. Sorry should have been MM (Market Makers). You know those firms like Knight et al who "make the market" in NASDAQ and OTCBB markets and who perform a similar function as the specialists on the NYSE. I only recently found out the following from NASD concerning short sales on the OTCBB. The rule for NASDAQ listed stocks is slightly different but similar. With regard to short selling on the OTCBB, market makers must follow NASD Conduct Rule 3370. Conduct Rule 3370 states that a member firm that accepts a short sale for a customer must make an affirmative determination that "the member can borrow the securities or otherwise provide for delivery of the securities by the settlement date." However, the affirmative determination requirement of Rule 3370 does not apply to market makers conducting short sales for their own proprietary account if the firm is affecting "bona fide market maker transactions in non-Nasdaq securities in which the market maker publishes a two-sided quotation in an independent medium." Member firms must have some method of showing compliance with affirmative determination, such as marking the order ticket. However these bona fide market maker transactions which involve short sales without borrowing shares are never declared, directly audited, have no limits applied and are never required to be covered. Money for nothing for the market maker, ruin for the long investor. It seems incredible that such a rule could exist which allows unlimited production of an infinite number of "phantom" shares without strict rules and regulation or even a requirement to report the numbers of shares created. You can see how any stock could be shorted virtually to zero if the MMs wanted to do it.