Identa Corp (IDTA)

[demmo47]

All you need is a willing (or friendly) market maker. To maintain liquidity, market makers will sometimes take the other side of the trade.

http://www.gsb.stanford.edu/news/packages/PDF/Volcker_duffie_011712.pdf

“In a section of the Dodd-Frank Act commonly known as “the Volcker Rule," Congress banned proprietary trading by banks and their affiliates, but exempted proprietary trading that is related to market making, among other exemptions. Proprietary trading is the purchase and sale of financial instruments with the intent to profit from the difference between the purchase price and the sale price. Market making is proprietary trading that is designed to provide “immediacy" to investors. For example, an investor anxious to sell an asset relies on a market maker's standing ability to buy the asset for itself, immediately. Likewise, a investor who wishes to buy an asset often calls on a market maker to sell the asset out of its inventory.”

“As opposed to a broker, who merely matches buyers and sellers, a market maker itself buys and sells assets, placing its own capital at risk. The service that it provides is “immediacy," the ability to immediately absorb a client's demand or supply of an asset into its own inventory. At any given point in time, the set of other investors who would in principle be prepared to bid competitively for the client's trade is not generally known or directly accessible to the client. The client could conduct an auction or a search for another suitable counterparty, but this takes time. Even if interested counterparties could be quickly identified, they would not necessarily have the infrastructure or balance-sheet capacity required to quickly take the client's trade. The client is therefore often willing to offer a price concession to a market maker in order to trade immediately rather than suffer a delay that exposes the client to price risk. If the client wishes to liquidate a position for cash, it may also have an opportunity cost for delayed access to the cash.3”

“If the asset is traded on an exchange, the client could obtain some degree of immediacy from the exchange limit-order book, but with an adverse price impact that is increasing in the client's trade amount. A market maker can often handle large "block" trades with lower price impact than an exchange.”