Below is a post I made earlier explaining what I was told concerning your email from Ameritrade. By all means, although KATX was on the Regulation SHO Threshold Security List not long ago, I never felt that KATX was a ”naked short” play. I saw and still see KATX for its mining potential and not because of it being a short squeeze play. However, given the buying volume over the past few weeks, I think we could again run into some ”Supply vs Demand” issues with the inventory of KATX share remaining to be bought… the Float. Understand, if and/or when KATX shows up on the Reg SHO List again, it will mean that the Float is ”officially” gone. Until then, it should not considered ”officially” naked shorted. However, read below to under the response to your email:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=44694203 Some have mentioned not being allowed to directly purchase online shares of KATX through Ameritrade as you can from some other Brokerage Companies. In order to buy shares of KATX through your Ameritrade account, you have to pick up the phone and call in to place and get your order filled. I have not heard this to be the case with any other brokers except Ameritrade for now.
Below are some very similar thoughts I shared with some other stocks, but I am sharing these thoughts here as a very similar situation exist here with buying shares of KATX online at Ameritrade that I think needs the same consideration to make sure everyone understands the reasons why such happens.
Back in the day, if I had to call in to buy a stock, I would not buy that stock. However, after doing it a few times this year, it's not as bad as it sounds or as bad as I had originally thought. I've learned to exercise patience to do such when I think a stock is really worth it as I have missed out on huge runs from not doing such on certain stocks in the past. I’m thinking about my friend who didn’t buy any shares of KATX when I first told him about it when it was trading in the .003s at such time. He told me that he refuses to call in to place a trade and would never do so. I only tried to tell him that I thought it would be worth picking up the phone to make the call to buy some KATX. I think he understands why his ego should have been left at the door.
I had researched this ”reason why” for having to call in to place your order when not allowed to place your order online years ago. Here’s what I was told in the past and recently a little while back to confirm why such has to be done.
Someone I spoke to at Ameritrade recently and in the past, again kind of let the cat out of the bag unexpectedly as to why a Brokerage Company sometimes stop online trading to force you to have to call in to place a buy order. I also spoke to some other brokerage companies and got similar responses too. Here's the beef with it.
There exists what is known as the ”Custodian of Accounts” on the side of the brokerage companies and on the side of the Market Makers (MMs). They are responsible for verifying and coordinating the electronic inventory of shares as transactions are monitored for buying and selling.
Whenever there is ”a shortage of shares” or an ”extremely low inventory of shares” available for the public to buy (the Float), the level of coordination for the dissemination of those shares have to be monitored that much more closely to make sure there is not an issue during the settlement time frame of T+3 days from the Clearing Houses. This means that the ”legitimate” inventory of KATX shares in the Float that are available for the public to buy is either at zero or about to hit zero. This means that the entire Float is either absorbed or nearly absorbed. This is at least what is triggered at Ameritrade’s Custodian of Accounts monitoring of KATX shares. With the inventory being at or near zero to negative, this means that a log of shares sold to an investor must be kept that contributed towards the MMs trying to create or maintain an orderly market and must be tracked for a known amount to be covered in the future. That's why we see the huge spreads too on low volume with some stocks.
Consider this example: Since there is a known shortage within the inventory of shares for KATX as confirmed by Ameritrade, imagine what would happen if there was only 1 million shares remaining in the complete or total "inventory of shares" within the MMs "Custodian of Accounts" at all Brokerage Companies to disseminate from their inventory of KATX shares. Imagine what would happen if three different people were trying to buy 1 million shares each of KATX at the same time through Ameritrade, TD Waterhouse, and Schwab and that they authorized electronic purchasing to happen as usual without the restriction. That would be a total of 3 million shares bought of KATX, but keep in mind that the MMs only had an inventory of KATX shares from their "Custodian of Accounts" of 1 million shares.
When T+3 days come around, whose account and from what Brokerage Company do the Clearing Houses credit from transactions allowed to take place between the Brokerage companies and the MMs to allow for the 1 million shares of KATX to cover one of the Brokerage companies; Ameritrade, TD Waterhouse, or Schwab?
What about the 2 million share imbalance that would exist from the other two companies not selected to be given the 1 million shares to cover? This could create an issue at the Clearing Houses as all trades have to be settled. There would be a 2 million share imbalance of KATX shares unsettled in at least two of the three accounts.
Since the MMs inventory of KATX shares is so small, having transactions happening all at once could cause an imbalance or negative balance of shares to never be ”officially” covered. Ameritrade needs to keep track of the shortage to make sure their inventory of KATX shares doesn’t get out of hand. Forcing investors to call in creates a more in depth and finite way of streamlining the control of ordering shares from the inventory to one at a time to make sure the inventory issue does not get out of hand. This is why it was taking much longer to get your buy orders filled with KATX as some have been posting at certain times. Each Brokerage Company would be different because of their different Custodian of Accounts situation which would be driven by the reduction in KATX shares within their inventory over time.
This shows me that if significant ”buying” volume comes into KATX, there might be a major problem for the brokerage companies and the MMs for having a shortage of shares to create an orderly market for KATX. To fix the problem, the MMs would have to seriously increase the bid to entice enough selling until they capture enough shares out of the open market to maintain order. This could cause some serious price increases if KATX drops some serious news to generate much more buying. We should be heading up in a huge way if I had to guess as more and more people realize all of KATX's potential.
So, bottom line, this means as the news gets stronger and as more volume comes in to buy up more shares out of the Float, the inventory of shares will continue to be decreased. This means that the Float is drying up in a very big way. Keep an eye on Level II once the price starts to increase to see how it strengthens from the bottom up. Look for basic ”Supply versus Demand” Principles to catapult KATX. Look for KATX to graduate to its next few levels. We are ”Golden” and ”Copper-nized” here with KATX.
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