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Microcap & Penny Stocks : Naked Shorting-Hedge Fund & Market Maker manipulation? -- Ignore unavailable to you. Want to Upgrade?

To: sixty2nds who wrote (864)	3/13/2006 3:50:14 PM
From: rrufff	Respond to of 5034

MM's have been squeezed as traditional margins have shrunk. ECN's, decimalization, etc., have made the markets more efficient. Yet, there is much to do. I believe they have looked more towards being in the action, than being traditional market makers. Here's one article that supports my view. More and more, the calls for changes in our system are being heard. There is no reason for MM's to keep open short or long positions for more than a few minutes in fast markets. Other suggestions and complaints are in this very well written article. Insight: Market Makers - What they do and no longer do By K.C. Grainger True market makers are a thing of the past and this has a huge impact on the small cap mining stocks' price movements...old support levels are not support anymore Over the last ten years, we have seen a decline in the number of true market makers in the smaller cap stocks; and worse yet, most have them have become active traders in the stocks that they previously made markets in. One must understand that a market maker (specialist is another term for market maker) in the past, would attempt to keep a neat market by trying to balance the bids and offers. They would fill a void during the times that there was not a match of sellers verses buyers. Remember, that there is not always a balance of buyers and sellers and much more so in less liquid stocks. In many stocks today, particularly small caps and juniors, there is rarely a perfect balance of buyers and sellers. In the past, the market makers would assist buyers and sellers in the market by buying or selling or selling short in their own accounts. Their market making work would greatly enhance the liquidity of the market and diminish volatility. Naturally, they had a profit motive. They would make their profits by their "market making." Sometimes they would win, and yes, sometimes they would lose. In general, they win more than lose by taking advantage of their years of experience and the fact that they really "see the inside of the market" in who is buying and who is selling and above all else, "how much." They are truly "in the loop. "Previously, most market makers were employed by the brokerage houses that would support their trading activities with their firm's own capital. They would add a bit of price stability, some support to the price of a stock and really cut down on the volatility. But today, most of the brokerage houses engage the same market makers to be traders for the brokerage houses profits. That is where their profits are. But What Happened? In the last ten years, we have seen computer trading done by far more investors than in the past. We have also seen in Canada something that should be an investor's right in the US markets. This is the reality; in Canada and the rest of the world, the highest priced bid and lowest priced offer, no matter whether that bid or offer is made by a small investor or a market maker, always gets the trade execution in any transaction. There is no trading around the public by the market makers, which too often is the case in the U.S. Just look at the trading activities in the very sleazy US OTC bulletin board. It adds a whole new dimension to the word "sleazy." It is a "dealer market" which means that only the bids and offers of the dealers actually show on the screen-not the best/highest "bids" and lowest/cheapest "offers." In every sense of the word, it is dishonest, since the best bids and offers often do not show, so it clearly creates a "false market picture" which is exactly what the market makers want. They don't want the investing public to know the true bids and offers that are available. Their license to steal would disappear. Actually, We don't even want to get into that, it is so frustrating to investors and we cannot even start to list all the complaints that we have received. The U.S. Securities Exchange Commission should end this nonsense now. As a matter of fact, the U.S. is the only place in the world where the highest bid and lowest offer for a stock do not receive priority. Guess who gets the priority? Right, the market makers! The U.S. should consider investors first and join the 21st century. Only when this fair play is finally accomplished, will Americans investors be treated fairly. That is not too much to ask. The public is "behind the eight ball enough in the too often sleazy world of investing. Note well that billions of dollars in fines have been paid by the brokerage houses for one primary reason-they were caught cheating the public again and again and again! How to Address it Today? Investors must realize that since there are no longer market makers as in the past, they must expect far more volatility and price plunges to levels far below where most stocks have bottomed previously. Stocks often sit and rot at prices that eventually may turn out to be "steals." One can lament and complain or perhaps take advantage by putting in bids for stocks that one finds appealing and waiting for the chance to invest in those stocks when they are often very undervalued. Couple the lack of supportive market makers with the fact that research coverage is often non-existent for small companies. Since there is very limited research coverage for most companies, the public is totally unaware of most undervalued stocks. The public usually only sees the narrow universe of stocks that the brokerage houses are recommending. Very few are undervalued...very few! And that is never going to change. Look at other sources for investment information, such as insider ownership trends, and make sure it makes sense to you. Editor's Note: K.C. Grainger is the editor of the Canaminvestor.com of Montreal, Quebec, Canada. thebullandbear.com