i do think there are nss. I have no idea to what extent, and what the motives are. For example, as a MM, I (not that I am a market maker, but go along with the assumption) make my money by filling trades , both buys and sells. lets imagine I make market in pbls, and in order to get busines, it would be wise to fill the order I get, so that when other trading desks come to me for an order, they know I will fill it for them, OTHERWISE THEY GO ELSEWHERE. So, in order to create business for myself , i am both low offer and high bid. Say for example, on one day, i get buy orders for 4 million shares at .01 which I fill, because I want repeat business, and buy 2 million at .0095. I have made a $1,000, and I am short 2 million shares. the next day I do the same. the third day , the stock goes down to .008 to .0085. I am now short 4 million shares at .01, and have an 8,000 unrealized gain as marked to market. If you have 10 market makers in the same boat, you can see how 40 million shares can be considered fails to deliver relatively innocently, and thats just for a small period of time. Conversely, as the stock goes up , and you are marked to market, the head trader , or someone who cuts your paycheck says, "cover that short, its screwing with our net cap requirements" or something to that effect, and if they all do that at once, you get a short squeeze.
As long as the stock is going down, there is no need to cover.
Just remember, the MM's arent out to "get you" , they are not neccessarily evil and acting in concert with other MM's, they do not send secret signals.
AI
