PacWest Equities Inc (PWEI)

[smrtmney]

The most important characteristic of gray market trading is that the official means of recording and settling a trade are not available. In the strictest sense, the transaction cannot be completed until the official books are open, or reopened in the case of a stock suspension. So although a broker has put together a buyer and seller who have agreed on a price, the arrangement is subject to all parties honoring their word. Although in practice it’s unlikely, in theory it’s possible that a sharp price movement after that trade has been arranged will cause one party to “break” the trade. In such a case, there is no practical recourse for the other party.

Because of the portfolio pricing complications that would arise from a broken gray market trade, portfolios that have daily inflows and outflows, like mutual funds, may hesitate to participate in the gray market.