To: GS_Wall Street who wrote (21658 ) 1/4/1999 5:15:00 PM From: Golden Bear Read Replies (3) | Respond to
Greg, glad you asked: most market makers are not placing sell orders from Shorts, rather they are placing regular sell (and buy) orders from individuals like you and me. But there are a handful of market makers who I believe primarily represent one or two individuals or funds, and as of late have been selling short a huge volume of AAPL shares. Watching their trading behavior on Level II for the last 2 weeks, it is very obvious what they are doing, especially on those recent light trading days e.g. 3 million shares traded. For example, INCA will display the largest ASK volume on the sell side, accepting orders until the buying volume softens and the bid price drops a 16th. Then INCA will immediately drop the ASK price by a 16th and will wait until other market makers follow suit, before taking a back seat. At some point, INCA will jump to the BID and will buy-back the shorted shares at the lower price until the shares from the other MMs have been bought up. It is my opinion that they use "preferencing" in choosing whose shares to buy. Then they leave the BID and jump back to the ASK to keep it from going up. These parties have been the most active and aggressive traders by far. This is largely why the spread has been 1/16 for most of the last month. This is an unusually tight spread for NASDAQ traded securities and it suggests that there is some serious stock activity going on i.e. the stock is being accumulated, distributed, or manipulated.
