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I read this the other day and it makes sense and gave me a little more insite on MMs... enjoy
Published on July 25th by anonymous author, we cannot vouch for the validity of its contents:
The King Explains the MM Pricing Game 25-Jul-08 12:53 am
With BBs, it is very easy for a MM to get trapped into being short. Reason being; most of the MM’s in this stock are what are called “wholesalers” - they don’t have retail brokers “working” the stock.
They rely on the “call” from larger retail houses. If a “Big” retail firm (E-trade) calls up a MM to buy 5,000 shares, they expect an “execution” from that MM. If he turns them down, or a partial fill, then the “Big” firm will go to another MM.
If this second MM “fills the order” then that “Big” firm has a moral obligation to continue to give future “business” in that stock to that MM. This goes on until he “fails” to perform.
Contrary to popular opinion the “Big” firms Do NOT necessarily go to the “Low Offer” to fill a buy order (Or high bid for a sell). They “Go” to who they think will perform to fill the order and expect that MM to “match” the “low offer” in the case of a buy (bid in the case of a sell). Even though this MM might in fact be the “high bid” and not really want to sell any more.
As a wholesaler he must perform or he will get a reputation as a “non-performer” with the “Big” houses and will cease getting “calls” which means he will soon go out of business.
How MMs get short even if they like the Company; Lets say that a stock (shell) has been lying quietly at $.25 bid $.50 offered. A limit order comes into one of the MM’s to Buy at $.50 for 1k sh. Prior to this trade that MM may be “flat” (neither long or short any sh). He fills the order and is now short 1k sh. He may raise his bid hoping to find a seller to “flatten” out his position. But before he realizes it a wave of buyers have come in and cleared out all the $.50 offers. Now the stock is $.50 bid .75 offered. Here comes that “Big” firm he just sold the 1k sh to at .50 with another bid for 1k @ .75. He makes this print. Now he is short 2k at an avg of .625. The market keeps moving and now its .75 bid 1.00 offered. Now he has to make a decision.
MM Hate to take a loss. So 9 times out of 10 he will now sell 2k at 1.00 making him short 4k but with an average .81. At this time he would love to see a seller at .75 so he can cover his short and make a few bucks.
But instead the market keeps moving up. Now it is 1.00 to 1.25 and here comes the buyer again at 1.25. He doesn’t want to lose the call so now he needs to sell 4k at 1.25 to keep his break even point above the bid. Now he is short 8k. Market moves up to 1.25 bid 1.50 offer here comes the buyer now he feels he must sell 8000 here because “stocks don’t go up forever”.
Now he is short 16k. And so on and so on. If the stock keeps moving up, before he realizes it he could be short 50k or 100k shares (depending how big his bank is).
Finally the market closes for the day and on paper he may look all right in that his “break even” price may be around the closing price. But now he has to figure out how to entice sellers so he can cover this short. It is important to note that if this happened to one MM it has probably happened to most all of them.
Some ways MM’s entice sellers; Run the stock up with a “tight spread” in a fast market, then “open” up the spread to slow down the buying. After “cooling off”, they lower the offer below the last trade right after a small piece trades on the offer then tighten the spread so that the sellers feel they can take a “quick profit” by “hitting the bid” on the tight spread.
Once the selling starts the MM’s walk it down quickly by only making small prints with a tight spread. Or, by running the stock up in the morning, averaging up their short then use the above technique to walk it down in the afternoon.
This post was submitted by MMInfo.
ARTICLE
NAKED SHORT SELLING: HOW EXPOSED ARE
INVESTORS?
+∗
James W. Christian,* Robert Shapiro,** & John-Paul Whalen***
+ One of the Authors of this Article is plaintiff’s counsel in a series of litigation
involving naked short selling. The Houston Law Review invited a response from defense
counsel, who elected not to submit a response.
* Managing Partner, Christian Smith & Jewell, Bachelor of Science, West Texas
State A&M University, 1975; J.D. South Texas College of Law, 1977, in only two years. In
addition to being licensed by the Texas State Bar, Mr. Christian is also licensed by the
New York State Bar. He is admitted to practice in all state courts in Texas and New York
and before the United States District Court for the Southern District of Texas, the United
States District Court for the Northern District of Texas, the United States Court of
Appeals for the Fifth Circuit, the United States Tax Court, the United States Court of
Claims, the United States Court of Customs and Patent Appeals, and the United States
District Court for the Western District of Colorado. I thank John M. O'Quinn for being my
partner and inspiration in these stock fraud cases; John and I believe our pursuit could
result in exposing the largest commercial fraud in U.S. history involving hundreds of
billions of dollars.
** Chairman, Sonecon, LLC, A.B., University of Chicago, M.Sc., London School of
Economics, Ph.D., Harvard University. I thank my collegaues, James Christian and John
O'Quinn, for their insights and teaching on this complex subject. The work benefitted
enormously from the opportunity to spend much of the last three years examining case
after case and instance after instance of short sales and their abuses. I also want to
acknowledge the experience I gained in understanding how financial markets work and
how they can be manipulated, through my service as Under Secretary of Commerce for
Economic Affairs in the administration of President Clinton and as a fellow of Harvard
University, the Brookings Institution and the National Bureau of Economic Research.
Finally, I thank Professor Nam Pham for his unstinting assistance in the technical
analysis of short sales.
*** J.D. candidate, University of Houston Law Center, BBA Finance, Texas A&M
University 2003. I would like to thank my wife Jennifer, and the rest my family for their
support during the writing of this Article. I would also like to thank Robert Ragazzo,
University of Houston Law Foundation Professor of Law at the University of Houston
Law Center, for his review of this Article and his helpful suggestions throughout the
publication process.
mails show journalist rigged Wikipedia's naked shorts
Track this topic Print story
Overstock's Byrne vindicated amidst economic meltdown
By Cade Metz in San Francisco • Get more from this author
Posted in Music and Media, 1st October 2008 19:41 GMT
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Two and a half years ago, Overstock.com CEO Patrick Byrne penned an editorial for The Wall Street Journal, warning that widespread stock manipulation schemes - including abusive naked short selling - were threatening the health of America's financial markets. But it wasn't published.
"An editor at The Journal asked me to write it, and I told him he wouldn't be allowed to publish it," Byrne says. "He insisted that only he controlled what was printed on the editorial page, so I wrote it. Then, after a few days, he got back to me and said 'It appears I can't run this or anything else you write.'"
The Journal never changed its stance. But last week, the editorial finally saw the light of day at Forbes - after Byrne added a few paragraphs explaining that naked shorting had hastened what could turn out to be the biggest financial crisis since The Great Depression.
With a traditional short sale, traders borrow shares and sell them in the hope that prices will drop. A naked short works much the same way - except the shares aren't actually borrowed. They're sold but not delivered.
By the middle of the summer, these unresolved "stock IOUs" - as Byrne calls them - were pilling up in four Wall Street giants already struggling to stay afloat: investment banks Lehman Brothers and Merrill Lynch and mortgage finance companies Fannie Mae and Freddie Mac. On July 12, the Securities and Exchange Commission issued an emergency order banning naked shorts in a host of major stocks, and all four of those names were on the list.
Patrick Byrne
The order expired in mid-August, and in the weeks since, Lehman Brothers has filed for bankruptcy, Merrill Lynch vanished into Bank of America, and Fannie and Freddie were seized by the US government.
Then, on September 17, the SEC issued a new order meant to curb naked shorting of all stocks. "These several actions today make it crystal clear that the SEC has zero tolerance for abusive naked short selling," read a statement from SEC chairman Christopher Cox. "The Enforcement Division, the Office of Compliance Inspections and Examinations, and the Division of Trading and Markets will now have these weapons in their arsenal in their continuing battle to stop unlawful manipulation."
In the wake of the SEC's crackdown, the mainstream financial press has acknowledged that widespread and deliberate naked shorting can artificially deflate stock prices, flooding the market with what amounts to counterfeit shares. But for years, The Journal and so many other news outlets ignored Byrne's warnings, with some journalists - most notably a Forbes.com columnist and former BusinessWeek reporter named Gary Weiss - painting the Overstock CEO as a raving madman.
Byrne has long argued that the press dismissed his views at least in part because Weiss - hiding behind various anonymous accounts - spent years controlling the relevant articles on Wikipedia, the "free online encyclopedia anyone can edit."
"At some level, you can control the public discourse from Wikipedia," Byrne says. "No matter what journalists say about the reliability of Wikipedia, they still use it as a resource. I have no doubt that journalists who I discussed [naked shorting] with decided not to do stories after reading Wikipedia - whose treatment [of naked short selling] was completely divorced from reality."
As recently as last week, Weiss told us he's never even edited Wikipedia. But emails shared with Byrne and The Register show that Weiss has in fact edited the encyclopedia's article on naked shorting. And they indicate he's behind an infamous Wikipedia account known as "Mantanmoreland," an account that - with the backing of the site's brain trust - ruled the articles on naked shorting, Patrick Byrne, and Overstock from January 2006 to March 2008.
A single Wikipedia edit also links the Mantanmoreland account to a PC inside the Depository Trust & Clearing Corporation (DTCC). Owned by Wall Street investment banks that may have benefited from naked shorting schemes, the DTCC oversees the delivery of stocks on Wall Street.
Janice it must not be real.,,
SEC ADOPTS RULE 10B-21 AND AMENDMENTS TO REGULATION SHO TO ADDRESS "NAKED" SHORT SELLING AND FAIL TO DELIVER SCENARIOS
Corporate & Finance Alert
(Thomas More Griffin)
October 21, 2008
The SEC has taken additional steps in its attack against “naked” short selling and in furthering its belief that such selling harms markets and investors.
Rule 10b-21
Effective October 17, 2008, the SEC adopted Rule 10b-21 under the Securities Exchange Act of 1934, as amended ("Exchange Act") to address failure to deliver securities that have been associated with "naked" short selling. Rule 10b-21 sets forth the liability of short sellers, including broker dealers acting for their own accounts, who deceive designated persons about their intention or ability to deliver securities in time for settlement and that fail to deliver securities by settlement date. The rule is not intended to limit or restrict the applicability of the general antifraud provisions of federal securities laws (such as Section 10(b) of the Exchange Act and Rule 10b-5 thereunder) to such fail to deliver scenarios. The SEC believes that Rule 10b-21 highlights how serious it believes such deceptive practices are and that such practices are detrimental to the securities markets and that the new rule will provide a “measure of predictability for market participants.”
The SEC adopted Rule 10b-21 in conjunction with Regulation SHO and Regulation M applicable to short selling and to address what it believes is an increase in fail to deliver occurrences. Rule 10b-21 only applies to equity securities. Under the Rules, it is unlawful for any person to submit an order to sell an equity security if such person deceives a broker-dealer, participant of a registered clearing agency, or purchaser as to its intention or ability to deliver the security on the date due, and such person fails to deliver the security on or before the date delivery is due. Scienter is a necessary element for a violation of Rule 10b-21. Rule 10b-21 targets short sellers who deceive their broker-dealers about their source of shares for borrowing for purposes of complying with Regulation SHO and sellers who misrepresent to their broker-dealers that they own the shares being sold. For purposes of the Rule, broker-dealers (including market makers) acting for their own accounts will be considered sellers.
Rule 10b-21 specifically provides that it is a “manipulative or deceptive device or contrivance” (as used in Section 10(b) of the Exchange Act) for any person to submit an order to sell an equity security if such person deceives a broker or dealer, a registered clearing agency participant, or a purchaser about the person’s intention or ability to deliver the security on or before the settlement date, and such person fails to deliver the security on or before the settlement date. As used in Rule 10b-21, settlement date means the business day on which delivery of a security and payment of money is made through a registered clearing agency.
SEC Adopts Amendments to Regulation SHO on Short Selling
The SEC recently adopted important amendments to Regulation SHO under the Exchange Act relating to short selling and fail to deliver securities. Both of these actions are effective October 17, 2008. These amendments have been added by the SEC to Regulation SHO in conjunction with its adoption of Rule 10b-21 aimed at “naked” short selling. Both of these amendments are consistent with the SEC’s concern that “naked” short selling disrupts the functioning of the securities markets and can threaten fair and orderly markets.
Rule 204T--Clearing Agency Participants. The SEC adopted interim Rule 204T of Regulation SHO, effective October 17, 2008 and expiring on July 31, 2009, under the Exchange Act to address “naked” short selling in all equity securities by requiring that participants of the clearing agency registered with the SEC deliver securities by settlement date or if the participants have not delivered shares by the settlement date, immediately purchase or borrow securities to close out of the fail to deliver position of the seller by no later than the beginning of regular trading hours on the settlement date following the day the participant secured the fail to deliver position. Additionally, a participant that does not comply with this close-out requirement, and any broker-dealer from which it receives trades in clearance and settlement, will not be able to short the security either for itself or the account of another, unless it has arranged to borrow or borrowed the security, until the fail to deliver position is closed out. There are several exceptions to Rule 204T. For example, sales of all equity securities under Rule 144 of the Securities Act of 1933, as amended (“Securities Act”) are excepted under certain circumstances.
Amendment to Rule 203(b)(3) of Regulation SHO--Elimination of Options Market Maker Exception. Effective October 17, 2008, the SEC adopted amendments to Rule 203(b)(3) of Regulation SHO under the Exchange Act to reduce the number of fail to deliver equity securities by eliminating the options market maker exception to the close-out requirements of Regulation SHO. As a result of the SEC’s action, fail to deliver in equity securities that result from hedging activities by options market makers will not be excepted from Regulation SHO’s close-out requirement. The SEC believes that this action will help to protect the operation, integrity and stability of the markets, and reduce short selling abuses.
The “options market maker exception” to Regulation SHO’s close-out requirements had excepted any fail to deliver in a threshold security resulting from short sales by a registered options market maker to establish or maintain a hedge on options positions that were created before the underlying security became a threshold security. The SEC has removed the exception in conjunction with its other short selling initiatives and its objective to reduce fails to deliver and address “naked” short selling abuses.
Should you have any questions regarding your own situation, please contact Thomas M. Griffin or Cheryl A. Gorman of our Corporate Department.
Janice us being adults i am willing to say let's agree to disagree on this one,,MM are crooks along with most of the companies on here,,,but some companies are real and get shafted by the MM,,,time will come when most of this wont be happening,,,we are in a world of trouble in the economy and the sec is in deep crap,,,they will start policing this up better and TRY to make this better,,,what sucks here is the people making the money are mostly the crooks and the rest,,,us honest investors are getting shafted on a daily basis,,,and they quiet smiling along time ago,,,
if thAt was said then short selling is true,,,cmon,,,MONEY is what feeds these crooks,,CEO's ....MM,,,,Some of the pumpers,,possible the website we are on,,,nobody really knows what goes on behind these doors,,,nobody,,,are world today is full of crooks and its these people that should be in jail,,,all of them,,,heck i know some people on ihub get in stocks early get friends in and pump like hell and bail as soon as they get it up there, it was done here,,,Im not saying that ffgo is good or bad but these people do it ,,,,
so Janice help me out here,,,wait wasnt it just months ago the government told the people that no financial instituitions could not be shorted,,,wasnt that FACT,,,you mean to tell me janice that companies with especially small floats arent getting shorted by MM,,,,cmon,,so your telling ME that if their are 100 shares of my company out there they will only sell 100 shares that is what your saying right?
neal wow millionaire investors,,,you hearing something
Not fond of what is happening but will find out soon,,,anyone picking up some shares today,,,curious want to know,
does anyone know what is the minimum price that you must open with and stay at for 3 months on different exchanges that we feel it might be going to ,,,
deep in snow back there but not here in los angeles,nice you got brother in law in stock,,,
wow ,,,haven't seen the board this quiet. Everybody must be relaxing waiting, waiting , bueller,,,bueller,,And the Answer is RCCH Going International
newbie,,,just left canton, ohio,,,,lets do this right
Is this the week that things will happen,,,Well everyone has been making this a week to look forward to,,,Come on MM, Shorts, Longs, and last Gene,,,,Bring it on,,,this is a year that many will go broke and many will be rich,,,Which will you be in. Good luck,,,Terry
good luck ,,,we are to close
ovation,,,thank you for a recap,.,,,wow, wow,,wow,,very very interesting,,,ufc is so big and with a president who made 200 million last year,,,not white but the brother,,,noone is taking down ufc,,,not even trump,,,lets run this baby and let me get out alive with a small profit,,,,
can someone show me that we are going down to 1 million shares,,,i wont believe anything until i see it in writing from gene
who has the remote control from CLICK the movie,,,lets move it gene and show the MM and others what your about
cmon OA,,,you know as well as most other traders they dont need to show financials on the pinkies,,,quit trying to scare people out of this,,,
reo,,,how many shares did you get,,,just curious
durk,.perfect time for my birthday on the 26th,,,love the huge volume and low volume,,,Are the MM so confused
whats up with the 5000 shares ,,,are they getting ready for halt the trading
i dont know,,,only when the numbers come out i guess we will know alot,,,hope it isnt all month before we find out
you know when i look at the 52 week high and see .075 cents and know this is a good company i shake my head in bewilderment,,,how could it be,,,how,,,with all that is going on,,blows me away,,,Gene cmon show us what is happening, lets rock this world,,
Everyone. I love the volume,,I don't believe many people were selling at all,,,I really don't know if i believe alot of people were buying,,,I wonder about that...But what i do know is once we see 100 to 200 % we will be seeing people jump in all over so the MM better hold tight and figure how they are going to get theirselves out of this situation...Looking for 0006 this week...cmon Gene Gene the dancing Machine, Show us the money and the uplist....terry the terrible
did anyone see 782 million shares are being traded,,,on my scottrade account it said that,,,wow and we are still at 0001,,,we are going big time soon,,,dont believe this BS about people selling ,,,something is going on,,,go gold look at that,,,,wow
look forward put me down for another billion,,,,
they do that ever now and then,,,dont worry until we are finished it comes back every now and then,...
429 million shares,,,,WOW, WOW WOW,,,,Tell me people ,,longs look at that volume,,,and no increase in price,,,wonder if the MM will gap this puppy tomorrow morning,,,they either better gap this to 4 or 5 and hope people jump out or wait and see if they can hold this down in the next month,,,Bring it on and work hard MM,,,the boat is about to sail,,want to see another 100% jump in price and watch this thing start to move in a big way,,,,Gene let's rock this world and show them what your really about. Take it easy all,,,,terry
look for end of week for volume to be at least 500 million,,,we are going to see 0006 by end of week. terry
no connie still in ohio,,,hoping for bkmp soon,,,nobody is saying much,,,,be back thursday
connie...i think webby is for good MIA,,,emily,terry
I won't be surprised if the MM gap big time within the week,,,They have to hope people will jump out if they gap big and it may scare people from jumping in,,,If we see it go to 4 side line investors might be all over this stock then,,,i think mm need to really think how are they going to eat up shares before uplisting,,,,good luck all,,,i want a great birthday present,,,so cmon Gene back it before the 26th,,,,terry
heath...explosion...cmon,,,this volume to me is nothing,,,nothing at all,,,you will see half a billion a day and more,,,
I hope that is not true that ceo's shaft the shareholders,,,they sure dont shaft directors of the board,,,blah blah,,,take the dog out back if we get the shaft. blah blah blah
sitting in the cold in canton ohio,,,miss my california,,,what a nice surprise,,,,we havent even started the process,,,to me this isnt a pebble thrown into the ocean,,,we are going big and bad,,,,bad to the bone,,,,next week
Im flying in 2 hours to cold ohio,,,,hope all is well...sandy has nothing to say huh?
see all later,,,goo bkmp
Cmon let the Dogs out ,,ruff ruff ruff,,cmon let the dogs out,,,lets rock this stock,,,my birthday on the 26th,,,give me my present GENE, Gene the dancing machine,,,,
Cmon BKMP,.,,,Do something, Just don't sit here like a fly on the wall,,,smon,,,