Replies to post #805 on KCG Holdings (KCG)

[Bull Finch]

How it eventually affects Pinkies is anyone's guess

NASCOW Share Tuesday, August 10, 2010 1:47:08 PM
Re: None Post # of 39788

Tuesday, August 10th, 2010
NASDAQ
by Roger Schultz
A new, stock clearing house will open in the U.S. in March that will right many of the wrongs perpetrated by the market makers, brokers, and hedge funds conducting business on the NASDAQ and OTC markets. The NASDAQ OMX has been approved to start the clearing of stocks next month. Currently, 92% of all stocks in the U.S. markets are cleared by the DTC, which is an arm of the Federal Reserve.

The problem for the market makers, brokers, and hedge funds, is all of their NSS (naked short selling) will have to be covered when companies jump to the No Nonsense NASDAQ OMX from the DTC, that for years looked the other way when this practice occurred.

A naked short sell is perpetrated when a buy order is placed by an individual for a stock and a market maker pulls those stocks out of thin air and puts the imaginary stocks into the individuals broker account. This practice has bankrupted countless marginal companies in the last 8 years. Many, if not most market makers are owned by the large banks and brokers on Wall street.

This practice of naked short selling artificially deluded the outstanding shares, making each share worth less causing a death spiral. At this point the brokers and hedge funds sell short, betting that the stock would further decline, which was a no brainer of course.

Almost all of these affected companies did not survive, at least in their original form. However, the companies that did survive this savage market manipulation will soon leave the DTC and join the new clearing house of the NASDAQ OMX. I know of one CEO that spent over 750K of his own money to save his shell OTC company from this type of manipulation and will most likely have a very healthy profit for his troubles.

When this transpires in March, ALL OF THOSE AIR SHARES MUST BE COVERED by the brokers or market makers AND all those hedge fund short sells MUST BE COVERED AS WELL.???

How it eventually affects Pinkies is anyone's guess for now......
Bederra Corporation (BEDA) Stock Trading Info:

BMFL

next week(s) is here

[Bull Finch]

Traders manipulating cheap stocks: market maker
Knight Capital Group, Inc.
KCG.N
$12.49
-0.13-1.03%

By Jonathan Spicer

WASHINGTON | Sun Sep 26, 2010 6:40pm EDT

WASHINGTON (Reuters) - Some traders are manipulating U.S. stocks that are worth less than $1 by taking both sides of trades in order to earn big rebates, according to an official at Knight Capital Group Inc (KCG.N).

Knight, a top U.S. market maker for individual investors, and the other four largest market makers discussed this problem with federal securities regulators on Thursday, Jamil Nazarali, Knight's global head of electronic trading, told reporters on Friday.

"It happens for hundreds of millions of shares per day," Nazarali said, adding that this type of market manipulation is hard to prove. The gaming costs Knight "tens of thousands of dollars" per day on some days, he said on the sidelines of a Security Traders Association conference here.

Nazarali added that U.S. Securities and Exchange Commission officials "seemed empathetic" to the concerns of the five firms that execute much of the orders of individual, or retail, investors -- Knight, UBS AG (UBS.N), Citadel Investment Group, Citigroup Inc (C.N), and E*Trade Financial Corp (ETFC.O).

SEC spokesman John Heine neither confirmed nor denied the meeting. He did not comment on gaming in sub-dollar stocks.

The manipulation concerns come months after the May "flash crash" stoked a debate over fairness in the mostly electronic marketplace, which has grown faster and increasingly complicated in the last decade.

At issue is whether an individual trader is using separate brokerage accounts to trade against himself, something known as a wash trade. Shares that regularly trade below $1, such as Sirius XM Radio Inc (SIRI.O) and Level 3 Communications Inc (LVLT.O), are the typical targets, Nazarali said.

Exchanges charge fees to those that execute against standing buy and sell orders, something called a take fee, and pay rebates to those that provide standing orders that are executed against. This is known as "maker-taker" pricing.

While stocks are normally priced in penny increments, rules adopted five years ago allow exchanges to price sub-dollar stocks in one-hundredth of a cent. The fees and rebates, however, are based on penny increments for all stocks, including sub-dollar stocks -- which creates a possible loophole through which traders can earn out-sized rebates.

A trader can, for example, send a "limit order" bid through one brokerage account, and a corresponding "market order" to sell that same stock in another account. After trading with himself, the trader earns the bid's rebate and pays the smaller selling fee -- which is usually fixed at retail brokers like E*Trade -- and walks away with the difference.

In this scenario, market makers such as Knight would foot much of the bill.

For a short period earlier this year, large exchanges paid outsized fees and rebates in sub-$1 stocks, but did away with it in the spring after protests from market makers, said William Karsh, chief operating officer at exchange operator Direct Edge.

The smaller CBOE Stock Exchange, or CBSX, offers the out-sized rebates now. The exchange, run by Chicago-based CBOE Holdings Inc (CBOE.O), has seen its market share rise in sub-dollar stocks this summer.

"CBOE takes its regulatory responsibility very seriously and does investigate unusual trading activity," a CBOE spokeswoman said. "However we do not comment on individual investigations."

Nazarali said Knight has reported this activity to regulators on a daily bases in recent weeks, and has brought it to the attention of the Financial Industry Regulatory Authority.

"It is really damaging to investors," Nazarali told reporters.

The SEC in recent weeks said it is probing trading and quoting activity for evidence of market fraud and manipulation. In a comprehensive paper issued in January, the agency asked whether pricing in the market is problematic.

(Reporting by Jonathan Spicer, editing by Martin Golan)

BMFL<OD

next week(s) is here

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