Some Educational Thoughts on MMs, NSS and more....

[fastwalker]

;D

SOME EDUCATIONAL THOUGHT


Hey Guys, thanks for taking a look. First, I’d like to say, that information contained herein represents my own opinion . I have, on occasion, written some “musings” simply to get things off my chest and to “recap” the day’s events.

This musing will be different, in that it will be designed for the Q & A section in which we have attempted to provide questions and solutions for anyone seeking information.. OK, with the preliminaries out of the way, I ‘d like to discuss Market Makers and their methods of manipulations.

Now bear with me on this, I will on occasion move off on a tangent and bring in other stuff, but I hope that since I’m winging this, it will all tie together and make some sense to more than just me…<br>
OK, Who or what is a Market Maker? Yeah, I know, each of you guys have a different and often colorful description of what an MM is.

Well here are some real “official” version relevant to who and what the Market Makers (MM)
are:

One of the major differences between The NASDAQ Stock Market and other major markets in the U.S. is the NASDAQ structure of competing Market Makers, in which there are approximately 250 member firms that act as OTCBB Market Makers. We can’t win against such odds, if they go bad.

Market Makers are NASD member firms that use their own capital, research, retail and or systems resources to represent a stock and compete with each other to buy and sell the stocks they represent. (That is an interesting notion…they compete with each other)

Each Market Maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Once an order is received, the Market Maker will immediately purchase for or sell from its own inventory, or seek the other side of the trade until it is executed, often in a matter of seconds”<br>
Now that last sentence is the one that makes you go mummy! Granted that is their “real” function, but most associated with CMKX, know the Mms for something different than their PR “spin” We know them for Naked Short Selling (NSS), which is the illegal practice of short selling shares that haven't been borrowed or do not exist at all, .we see them or define them as “air shares.”<br>
Why do we feel that NSS is taking place with our stock? There are various reasons, some are “gut” check reasons from investors who have the experience to see such activity and others, rely on “hard data,” to support their contention.

Often as investors, we follow various activities or trends, in order to estimate what the market and a stock in particular may do. Since we do not have access to or would deal in “insider trade” information, we have to rely on “predictors.

Therefore, if we as average investors utilize such tools, it stands to reason that market makers must use similar data gathering tools, to predict activity on the market, of course. Because they are professionals, we can also assume their tools are more sophisticated than those being used by you and me, the average investors.

However, as I pointed out, since we do follow activity and trends, we are often suspicious of activity which may indicate some type of “insiders “ information that may demonstrate a "notable" reaction by an adjustment of the depths of the pps quotes.

Granted this activity, say for the NASDAQ and Exchange-listed stocks quoted, are relatively stable for NASDAQ stocks than OTC, that only means we can more easily see the (PPS) start to deteriorate after the influx of some possible “insider” trading begins, which isn't as notable versus the often volatile activity associated with the OTC, in which wild "swing" of the pps are more common.

Now we have to also ask, do market makers and specialists in the marketplace detect the presence of insider trading?

If so, how do quoted bid-asked spreads and market depth react to the onset of insider trading? Do insiders earn abnormal returns from illegal trades?

How safe are they in the knowledge that they will make money from such trades and not be detected by others?

Well to ask if these guys can detect the presence of the insiders and avoid or capitalize on that activity, is kind of like asking a harden criminal, if he “knows” the methodology of criminals within his specialize field of endeavor?

Point being, they (MM)know, even if they do not participate, from experience what to look for regarding insider activity.

Since it is a given, they (MMS) are for the most part, specialist in the market place, within that specialized environment, "given” their routine usage of that arena.

They can, for all intents and purposes, be viewed from any “reasonable” person‘s definitions / expectations, as to their qualifications and ability to "detect" such insider activity and ignore, move off, or participate.

Given the reasonable person's expectation, MMs are highly specialized and “knowledgeable” individuals on many “routine” and or unusual market related activities, of which “insider“ activity could Be considered as one.

When they are engaged in such activity, one can easily assume they can and may be "purposefully" driven by that data / knowledge of same, relevant to their own individual performance and the magnitude of it's impact, regarding their usage and or avoidance.


more....

[fastwalker]

continued...

On a daily basis, we see two or more MMs on our stock. This activity, which irritates all of us, can’t be a good thing , can it? Well, in a situation where NSS is the primary activity of the MMs, this activity is referred to as “Ghosting, “ which is the illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. This is a practice which we see on a routine daily basis, drives us crazy, which may account for the lack of tolerance seen on the boards and at the recent Vegas party, since we have watched our stock “drop,” and remain low for an extended period of time, we assume their (MM) activity is not beneficial to us.

so how and why can they (MMs) get way with it? Aren’t there Laws to protect us, or are we simply covered by the “caveat emptor” warning when dealing with risk?

Of course there are laws, this practice is illegal because market makers are required by law to act in competition with each other. Ghosting is termed as such because, like a false image or a ghost, collusion and manipulation among market makers is difficult to detect.

Is it really?

As an investor, you may have a broker to manage your financial assets, often they are required, just as a good CPA, to deal with your debt or equity and your personal dreams / goals relevant to your shares. Usually, a portfolio is made up exclusively of publicly traded stock and you have very little time, since you are still working for a living, to watch the stocks in your portfollio and as a result, you may be unaware of , NSS, or how to guard against exposure to broker-dealer or the dreaded market maker manipulation.

So what can we do as a “day” trader and or “rabid” CMKXers with regards to naked shorting, especially since most of our activity is Internet-based ?

Well lets start by increasing our awareness of market maker manipulation, which we can or should be able to recognize from our experience with CMKX.

Why is that important to recognize this market manipulation / NSS? Simply to be more effective in isolating and establishing a plan, to control, defeat and eliminate the adverse effects of MMM on your personal securities. Notice I said “isolating and establishing a plan, to control, defeat and eliminate.” Usually a plan works best, to achieve one person’s objective. However, given the scope of the problem at hand, one person will be unlikely in a position of sufficient enough power and or resources to deal with the problem…more on that later.

We know for example, that the function of the market makers is essentially a good one, designed to assist the market in many areas. Especially, beneficial are their functions as a market maker, to handle small-sized and micro-cap stocks; as an exchange floor specialist involved with mid-sized or large-capitalized stocks; or a broker- dealer, who handles all stocks, where they essentially perform two separate and, apparently, incompatible functions.

First, they have to maintain an inventory of the stocks their firms have underwritten, and or continues to trade, or make a market in. They buy and sell these inventories for profit
and in in theory, they will buy low, which reduces the decline in price per share (PPS), and sell high, which reduces the rise in PPS. Therefore, these profit-making behaviors are presumed to provide a stabilizing effect on changes in the PPS of the stocks they make a
market in

Second, they post the bid and ask prices at which others are willing to buy or sell and match incoming buy and sell orders. In return for performing these functions, market makers or specialists generate revenue for their firm through various order-flow or transaction-fee schemes.

But like the conflicts apparent in the dual role of an analyst-broker or auditor-consultant, the broker-dealer is faced with an opportunity to sell his or her firm’s inventory before others in a declining market or buy for his or her firm’s inventory before others in a rising market. This practice is one form of market maker manipulation. It is illegal, difficult to detect, but alleged in many instances—both correctly and, often, incorrectly—stated on Internet stock-chat message boards like us and other CMKX boards.

more...

[Warren]

I am waiting for the More ,but again I think you are covering it well

[fastwalker]

Warren said:

I am waiting for the More ,but again I think you are covering it well

As I said..I'm composing this off the top of my head and also, checking my facts as I go along...don't want to be a smear patrol...lol

[fastwalker]

continued....

There is also a practice used by the Mms called “front running,” in which specialist market makers use their knowledge of private, incoming order-flow information
revealed by limit orders to generate monopolistic trading profits.

In June 2002, The Wall Street Journal reported that Knight Trading Group, (We are all familiar with these guys..) handled more than 11% of all the buy and sell orders for Nasdaq-listed stocks in 2000. They were in fact under investigation by the Securities &
Exchange Commission (SEC) and the National Association of Securities Dealers (NASD) for alleged “front running.”

Knight’s former head of institutional trading accused Knight traders of front running. He alleged that the traders placed their own orders for stock before others. Now that is interesting. We have terms now, that better describes the activity of the Mms with regards to our own stock..


Lets see the terms we have are as follows:

Ghosting, “ which is the illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. This is a practice which we see on a routine daily basis, and

“Front running,” in which specialist market makers use their knowledge of private, incoming order-flow information revealed by limit orders to generate monopolistic trading profits.

Which we can add to our term / knowledge of NSS as the source of our curreent problems with a depressed PPS, or simply replace NSS with the other activitesas being the ones realy causing the problem, or a third option, all the above apply.

Guys IMHO, I feel thses terms are, or may be more applicable to our situation with the MMs.

Though front running per se may not be
particularly damaging in an dof itself, if in fact the MMs are ghosting and front running as they NSS , this musing might illustrate the "real " abuse and the MMs, and their conflicting roles as both a facilitator of an orderly market (matching incoming orders from other investors to buy and sell) and as someone with the desire to generate profits from the inventories traded for their firm’s and or an external (hedge fund?)account.

So, since I have taken a position that NSS, may not be the "exact" problem we are facing, I will conclude by simply saying the following, toallow the time to think about it on your own.

In front running, specialist market makers use their
knowledge of private, incoming order-flow information
revealed by limit orders to generate monopolistic trad-
ing profits. So if, we has investors have a "way" to remove the "middle man" our broker, we may in fact be able to limit the intelligence being acquired by the MMs to "manage" our stock to their advantage...

Thats all for now..thanks for reading.

[fastwalker]

one last thought...


Knight knew in my opinion, as a reasonable person, that by placing the same orders for Knight’s customers, they (Knight) would profit in advance from customer orders, just as they knew, their efforts would push the stock of any comapny they are focused on, up or down, costing investors millions of dollars.

Sorry checked my notes and discovered I had not inlcude this part..lol

[fastwalker]

continued....

Just another thought on NSS. Usually companies with a declining PPS are targeted for
naked short selling. Which makes me say huh? At what point in time, did CMKX have a declining PPS, that was not “managed” by the MMs?

I couldn’t let the off-shore guys go without mentioning them. The practice of NSS is very damaging to all publicly traded firm and may very well be, popular among the off-
shore brokerage firms where U.S. securities laws are less easily enforced or do not apply.
Alledgelly the new laws in 2005 wuill address these and other similar problematic issues.

Anyway, NSS is for all intents and purposes very similar to the counterfeiting of currencies. In a naked short sale of stock, short positions are not declared or disclosed, shares are not borrowed to cover the short sale, and the stock is never delivered to the purchaser. The result is a dilution action, in that it results in an artificial, unauthorized, and illegal increase in the number of shares issued and outstanding and in a manipulated decline in the PPS of the company’s stock.

The broker-dealer merely floods the market with cheap, nonexistent shares of your firm’s stock. The seller of these nonexistent shares keeps the proceeds and you take a beating and a loss on your investment.

For example, whenever a company announces concerns over naked shorting and takes measures to ensure that trading in their shares occurred in a “fair and appropriate manner.”

A situation can occur where shareholders of record hold XXXXX number of shares and XXXXX number of shares are available, free trading shares, leaving the Depository Trust Corporation, with a net deficiency of more shares than can be accounted for.
Sometimes, the company being “managed” will announce that it will allow “custody only” trading of its stock to protect stockholders against naked short selling.

What does that mean? Well under custody-only trading, a company’s stock is issued only in the name of beneficial owners in physical certificate form. So, we now know that a very effective way, possibly, to deal with the NSS is to suggest to all CMKX share holders , if they are not dealing with the stock holdings in a cash accounts, do so and further, request delivery of your share certificates to prevent the shares from being shorted.

S T O C K - C H AT M E S S A G E B O A R D S

Okay, might as well address the message boards also, since they do have an impact, maybe not on the stock, but on the investor looking for information on their stock.

When a stock is publicly traded, such as our stock and many others, be it Big Board or OTC, we will see many boards and other venues “spring up,“ to monitor their activity. A good example is the Yahoo! Finance and Raging Bull stock-chat message boards and as proven by membership and quality of DD, some what better ones that can be found as Pro boards. This board offers a place where the novice and old timer alike, playing the market can go, and gain new friends, gain an understanding of the stock, or simply lurk and watch and learn , as they review possibly, some current data and or commentary on the stock .

Usually these boards are filled with many different types of people, with varying agenda’s and often, the history of the poster and or their particular level of involvemnet with the stock, can be seen by their number of posts. Now that s not to say that a poster is very sophistication in the ways of the world, or the stock market in general, often someone with less posts may seem to be an unsophisticated investor, but may simply not have the time or ability to “explain” their personal beliefs.

This unsophisticated investor is often called a “newbie” and sometimes the term fits, especially if they fail to understand the gist of the conversation taking place on the board, when they make their entrance. And ot the intricacies of stocks. Whereas a sophisticated investor is unnamed, but is often quoted and or referred to for his / her knowledge and or ability (methodology) for DD (Due Diligence..research).

Now having been an avid user of the boards, I can say with some certainty, that people from our company “monitor” our conversations. Why, so I say that? Common sense, the simplest way for our company to know what we are thinking is to have someone from the company actually monitor all the stock-chat- message boards on comments / complaints about CMKX and associate companies.

Within the dynamics of the boardss, we find many people who are conversant with the tools of the trade, such as the L2, which if routinely checked by n=board members, will indicate activity increases, stock price or volume behavior that is atypical, or not.

When a large number of complaints are present / detected on the stock-chat message
boards. The level of sophistication can often be determined by reviewing the aliases’ posting history, a feature available on Raging Bull, Yahoo! Finance and our Pro boards
stock-chat message boards. Often this complaint activity can be associated with “bashing,” a term used to identify neagtive comments directed at our stock, in an attempt to cause an unpleasant reaction (drop in PPS), or influence “newbies” to sell.

Someone spoke about Melvin coming to the boards / pal talk, etc. In my opinion, he should not respond directly to stock-chat message-board complaints, because as a company representative, he can be seen as an insider, which may violate the SEC’s Regulation FD (Fair Disclosure).





Finally, these further thoughts about the boards. The fact that individual investors discuss the behaviors of the MMs, the stock in genral and in relation to other JV activity, indicates that there is not a lot of attention being paid to periods of front running , which are often brief, on some of the boards that watch everything, this activity rarely goes unnoticed.

For what its worth, Individual investors post messages about their own trades and the failures of market makers to honor their trades in the legally required sequence. This and other trading manipulations are governed by restrictions enforced by the SEC, the New York Stock Exchange, and the NASD.

For example, short sales cannot be executed in a declining market, and manipulation is specifically prohibited. SEC rules 10a-1 (the uptick rule) and 10a-2 (the availability/
delivery rule), NASD rule 3350 (the best bid rule), and Rule 105
of Regulation M.

So instead of taking action on an alleged illegal activity, most of the board chatters are of the opinion, they don’t want to “rock” the boat and in voicing that opinion, state that they would prefer instead, to allow someone else (RG) to do that. So, everyone moves back onto berating the Market makers, as the sole source regarding the lack of movement on the stock, when in fact there may be many variables, of which the pps is in the basement and not moving upward.

Just some thoughts to finish out this Q&A piece, which I think I’ll call “the CMKX stock manipulation.” or , what I did one afternoon when I was bored….lol

Now that is it..no more...nada...fini...!

[widdows]

wow.....brain hurt...need pie