Facinating article on "Cellar Boxing"(II)# Stock
l*m
1 楼
An interesting phenomenon occurs at these "cellar" levels. Since NASD Rule
3370 allows MMs to legally naked short sell into markets characterized by a
plethora of buy orders at a time when few sell orders are in existence, a MM
can theoretically "legally" sit at the $.0001 level and sell nonexistent
shares all day long because at no bid and $.0001 ask there is obviously a
huge disparity between buy orders and sell orders. What tends to happen is
that every time the share price tries to get off of the cellar floor and
onto the first step of the stairway at $.0001 there is somebody there to
step on the hands of the victim corporation's market.
Once a given micro cap corporation is “boxed in the cellar” it doesn’t
have a whole lot of options to climb its way out of the cellar. One obvious
option would be for it to reverse split its way out of the cellar but
history has shown that these are counter-productive as the market
capitalization typically gets hammered and the post split share price level
starts heading back to its original pre-split level.
Another option would be to organize a sustained buying effort and muscle
your way out of the cellar but typically there will, as if by magic, be a
naked short sell order there to meet each and every buy order. Sometimes the
shareholder base can muster up enough buying pressure to put the market at
$.0001 bid and $.0002 offer for a limited amount of time. Later the market
makers will typically pound the $.0001 bids with a blitzkrieg of selling to
wipe out all of the bids and the market goes back to no bid and $.0001 offer
. When the weak-kneed shareholders see this a few times they usually make up
their mind to sell their shares the next time that a $.0001 bid appears and
to get the heck out of Dodge. This phenomenon is referred to as “shaking
the tree” for weak-kneed investors and it is very effective.
At times the market will go to $.0001 bid and $.0003 offer. This sets up a
juicy 200% spread for the MMs and tends to dissuade any buyers from reaching
up to the "lofty" level of $.0003. If a $.0002 bid should appear from a MM
not "playing ball" with the unscrupulous MMs, it will be hit so quickly that
Level 2 will never reveal the existence of the bid. The $.0001 bid at $.
0003 offer market sets up a "stalemate" wherein market makers can leisurely
enjoy the huge spreads while the victim company slowly dilutes itself to
death by paying the monthly bills with "real" shares sold at incredibly low
levels. Since all of these development-stage corporations have to pay their
monthly bills, time becomes on the side of the naked short sellers.
At times it almost seems that the unscrupulous market makers are not
actively trying to kill the victim corporation but instead want to milk the
situation for as long of a period of time as possible and let the
corporation die a slow death by dilution. The reality is that it is
extremely easy to strip away 99% of a victim company’s share price or
market cap and to keep the victim corporation “boxed“ in the cellar, but
it really is difficult to kill a corporation especially after management and
the shareholder base have figured out the game that is being played at
their expense.
As the weeks and months go by the market makers make a fortune with these
huge percentage spreads but the net aggregate naked short positions become
astronomical from all of this activity. This leads to some apprehension
amongst the co-conspiring MMs. The predicament they find themselves in is
that they can’t even stop naked short selling into every buy order that
appears because if they do the share price will gap and this will put
tremendous pressures on net capital reserves for the MMs and margin
maintenance requirements for the co-conspiring hedge funds and others
operating out of the more than 13,000 naked short selling margin accounts
set up in Canada. And of course covering the naked short position is out of
the question since they can’t even stop the day-to-day naked short selling
in the first place and you can't be covering at the same time you continue
to naked short sell.
3370 allows MMs to legally naked short sell into markets characterized by a
plethora of buy orders at a time when few sell orders are in existence, a MM
can theoretically "legally" sit at the $.0001 level and sell nonexistent
shares all day long because at no bid and $.0001 ask there is obviously a
huge disparity between buy orders and sell orders. What tends to happen is
that every time the share price tries to get off of the cellar floor and
onto the first step of the stairway at $.0001 there is somebody there to
step on the hands of the victim corporation's market.
Once a given micro cap corporation is “boxed in the cellar” it doesn’t
have a whole lot of options to climb its way out of the cellar. One obvious
option would be for it to reverse split its way out of the cellar but
history has shown that these are counter-productive as the market
capitalization typically gets hammered and the post split share price level
starts heading back to its original pre-split level.
Another option would be to organize a sustained buying effort and muscle
your way out of the cellar but typically there will, as if by magic, be a
naked short sell order there to meet each and every buy order. Sometimes the
shareholder base can muster up enough buying pressure to put the market at
$.0001 bid and $.0002 offer for a limited amount of time. Later the market
makers will typically pound the $.0001 bids with a blitzkrieg of selling to
wipe out all of the bids and the market goes back to no bid and $.0001 offer
. When the weak-kneed shareholders see this a few times they usually make up
their mind to sell their shares the next time that a $.0001 bid appears and
to get the heck out of Dodge. This phenomenon is referred to as “shaking
the tree” for weak-kneed investors and it is very effective.
At times the market will go to $.0001 bid and $.0003 offer. This sets up a
juicy 200% spread for the MMs and tends to dissuade any buyers from reaching
up to the "lofty" level of $.0003. If a $.0002 bid should appear from a MM
not "playing ball" with the unscrupulous MMs, it will be hit so quickly that
Level 2 will never reveal the existence of the bid. The $.0001 bid at $.
0003 offer market sets up a "stalemate" wherein market makers can leisurely
enjoy the huge spreads while the victim company slowly dilutes itself to
death by paying the monthly bills with "real" shares sold at incredibly low
levels. Since all of these development-stage corporations have to pay their
monthly bills, time becomes on the side of the naked short sellers.
At times it almost seems that the unscrupulous market makers are not
actively trying to kill the victim corporation but instead want to milk the
situation for as long of a period of time as possible and let the
corporation die a slow death by dilution. The reality is that it is
extremely easy to strip away 99% of a victim company’s share price or
market cap and to keep the victim corporation “boxed“ in the cellar, but
it really is difficult to kill a corporation especially after management and
the shareholder base have figured out the game that is being played at
their expense.
As the weeks and months go by the market makers make a fortune with these
huge percentage spreads but the net aggregate naked short positions become
astronomical from all of this activity. This leads to some apprehension
amongst the co-conspiring MMs. The predicament they find themselves in is
that they can’t even stop naked short selling into every buy order that
appears because if they do the share price will gap and this will put
tremendous pressures on net capital reserves for the MMs and margin
maintenance requirements for the co-conspiring hedge funds and others
operating out of the more than 13,000 naked short selling margin accounts
set up in Canada. And of course covering the naked short position is out of
the question since they can’t even stop the day-to-day naked short selling
in the first place and you can't be covering at the same time you continue
to naked short sell.