Replies to post #1635 on Super Hero Justice League Team America.

[DeepBlue1]

That was some good info you posted about MMs etc last night over on the PNMS board, but I didn't get a chance to show you this rule on MMs and naked shorting last night.

This type of market corruption is where I've spent a lot of time educating people too and thought you may want to add it to your arsenal as well. This is a gigantic loophole that needs to be closed. Here's the link to the rule in it's entirety...#msg-19843914, and below is the excerpt that's most relevant.

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That rule was created to allow for market makers, who by becoming market
makers, agree to 'make a market' in certain stocks. That means that they
will sell you a share, or buy a share from you,
even if there isn't any available, or there are no other buyers for it.
The Market makers'
job is at least partly, to provide liquidity to the market. In thinly
traded securities, or securities where
there is a small public float, the market makers' ability to naked
short is crucial to the liquidity of the market in that security.

The abuse takes place when the market maker for whatever reason
determines that the market for a particular security has become
"disorderly". Too much buying pressure, for instance, can cause a
price spike in that security that would have no relationship to the
true book value of the security. The market maker then determines
that he will naked short to fill orders, knowing that by doing so,
the price will not explode on unusually high demand because he can
literally issue new shares under this rule. The market maker then
waits, with an open naked short position in that stock,
until the buying pressure subsides, and he can buy enough shares back
at lower prices to cover his naked short position.

The rule does not have any time requirements and that allows for the
market maker to keep a naked short position open for potentially years.
In reality, until the buying pressure subsides enough for him to buy
back at lower prices however many shares he needs to fill previously
filled orders that make up his naked short position, it simply stays
open, and the money sits in his account.