Verus International Inc (VRUS)

[The Economist]

Many of you hear every now and then how MMs are holding a stock price down or etc. But what are they?

An MM is not some guy sitting in a dark basement, its often a firm which will specialize in a group of stocks, or have a relationship with MM's who deal with specific stocks.Its the the job of an MM to provide liquidity and in the small cap world, this is very important. Unfortunately a side effect of this job of providing liquidity are large short positions by MM's.

If I call my broker and I want to buy 1000s of WXYZ , he will call up the trader for my brokerage who then will call up a market maker who holds inventory in that stock. Most traders already have set relationships with MM's they deal with. It is the task of the MM to be able to provide my brokerage with shares, and quickly.

The MM may not have 1000 shares himself, but he knows other MM's who do, so he will actually have a short position in the stock until he can purchase back these shares. This is when most of the mess begins, MM's may try short more of the stock to get it lower so they can cover the short at a lower price.