COMMONAME, Market Maker Manipulation (MMM) is a hotly debated topic. I'll share some interesting information and examples of MMM with you to help explain. First, I want you to take a look at this Market Maker DTC Report showing the net change in Market Maker position for an OTCBB stock over the last year:
As an example of MMM, see the significant Net Change in position on the March 03, 2004 report. It is 2,850,656 shares (increased over prior period) held by all MM's in this stock.
The stock was trading at .014 on March 03, 2004. In the DTC Report for March 12, 2004, the Net Change in MM position was down to 620,560 or a retail distribution of about 2.2 million shares.
See the volume and close price over the intervening dates below. During this distribution, the volume decreased yet the price increased from March 03 (.014) to March 15 (.023).
ALLMOST A DOUBLE IN A WEEK on decreasing volume and a Net Decrease in positions by the MM's. Kind of appears that they are making a market for themselves, eh?
eMax Corp./eMax (EMAX) daily bars
Day Date Open High Low Close Volume === =========== ========== ========== ========== ========== ===========
Still not convinced...? MMM exists in the form of "front running", "churn", and "naked shorting" (hopefully soon to be managed out).
Churn causes a manipulation in the printed volume of OTCBB stocks. Did you ever notice that sometimes you see only one print for a percieved "buy" or "sale", and sometimes you two, e.g., an odd lot at 5128 shares 13:01 at .525 then the same number 5128 13:02 at .53? (Someone selling 5128 shares and someone else buying 5128 shares or MM's manipulating volume with MM to MM trades) MM to MM trades cause a perceived increase in volume when in effect no change in supply and demand has actually taken place.
Note the EMAX DTC Report how MM's become flat overall by trading amonst one another after they have distributed). As I have posted before, it's friendly co-opetition amongst MM's. I still challenge anyone to show me how OTCBB MM's are making a market (adjusting supply and demand to a 1:1 equilibrium) for anyone except themselves.
For more convincing evidence on this subject read the following excerpt from this 2000 letter to the SEC then follow this link:
"Market Maker to Market Maker transactions are recorded on the sell side only (same as an investor buy), in contrast, the ACT system records both buys and sells by Market Makers when the trade is being made with the general public.
Lets look at a few examples, and please note that the side of the trade is inverted depending upon the market participants "point of view." When a Market Maker buys from the general public, it's the same as an investor sell, it is recorded as an ACT system buy or "B". When a Market Maker sells to the General public, which is the same as an investor buy, it is recorded as an ACT system sell or "S".
So the Market Makers report both buys and sells to the general public. Unfortunately here is where the rules change to the detriment of the average investor: A Market Maker to Market Maker transaction is recorded solely on the sell side as an "S", not on the buy "B" side. If a Market Maker buys from another Market Maker, it is not recorded in the ACT system as a "B", it is only the selling Market Maker that reports it.
This is the core reason that it appears in the real time price stream for OTCBB stocks that a bid:ask ratio of greater than 1:3 is often required in order for prices to move up, since a Market Maker to Market Maker transaction represents no change in the supply demand equilibrium of a stock. The excess over 1:1 is Market Makers trading with each other.”
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