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The information on Groklaw is not intended to constitute legal advice. While Mark is a lawyer and he has asked other lawyers and law students to contribute articles, all of these articles are offered to help educate, not to provide specific legal advice. They are not your lawyers.

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Here is my understanding. | 393 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Here is my understanding.
Authored by: sd_ip_tech on Sunday, May 27 2012 @ 03:49 PM EDT
The way these large trading companies work is they crunch massing amounts of
data in algorithms to give them a view of a trend. It's quite complicated but
the simple term is moving average using regression analysis. One of the factors
to be weighed is number of sort positions vs long positions. This can be seen by
insiders who have the computing power. I'm not sure if a normal ticker would
show or if it would have to be some other raw feed. It's an imbalance situation
over time. This is one way the chart people can say there is resistance at such
and such a level, ie a preponderance of buy/sell shares @ a price after the
fact. So, large houses can theoretically "float" bogus trades to try
to manipulate the market then later cancel before the trade has been filled.
This practice is illegal and is one reason why the small investor has no level
playing field. I don't know what can be done about the skimming that occurs as a
matter of practice.

---
sd_ip_tech

[ Reply to This | Parent | # ]

News Picks: Naked Short Selling?
Authored by: digger53 on Sunday, May 27 2012 @ 04:18 PM EDT
Stock price quotes gererally reflect recent trades. The appearance of a fall in value due to massive short selling will cause the price of legitimate investors' shares to fall, maybe plunge. What the penalties are, I don't know, given recent history it must be something like a slap on the wrist with a wet noodle.

Moral: If you want to steal do it big: go to Wall Street. If you hold up a convenience store with a water pistol and get $1000.01 and you get caught, you will be looking at years of hard time. Steal $ billions with a computer or a pen and paper and iff you get caught you may get a fine and a trip to a country club "prison" for a vacation.

My guess is that the "respectable" denizens of Wall Street have stolen more than the inmates in all the jails and prisons in this country combined. Ain't it grand what bribes campaign contributions can acomplish?

[ Reply to This | Parent | # ]

I'll take a shot at explaining.
Authored by: Anonymous on Sunday, May 27 2012 @ 04:37 PM EDT
If a large institution shorts a stock (this occurs on the options market) normally they will do that in high volume. The higher the volume, the more the average stock holder will worry. They (the average stock holder) are assuming that someone knows something bad about a stock they hold. Normal stock holders will start to sell the stock instead of holding it to cut their loses. That then puts pressure on the market maker who also sees large volume on the options market but are holding more and more stock. But they don't want to hold a stock for the same reason that the average stock holder doesn't want to hold it. So the price keeps going lower which triggers some options traders (intra day traders) to short the stock some more thinking they can make some money on a declining stock. But that only causes more selling on the stock since they see even more stock shorting going on.

It is a bad spiral really. Is it legal? Well yes and no. Just recently rules were enacted that state you cannot naked short financial/bank stocks. The rule states that you must hold the stock you are shorting. So for any other industry other than financial/bank stocks you can naked short. Before the rules were changed, you could naked short any stock trading on the options market.

It gets even more fun if you start to think about program trading. These are computers that are watching the stock market and will trigger large volume of buy and sell orders and sometimes options (puts/calls) based on current market activity. If a large option short sell gets traded, the programs automatically trade based on the programmed algorithm.

[ Reply to This | Parent | # ]

News Picks: Naked Short Selling?
Authored by: Wol on Monday, May 28 2012 @ 11:10 AM EDT
Let's take an example of this - a real one - where this sort of behaviour nearly
sank a bank.

I'm not sure of the exact details, but someone decided to short Porsche, which
is ?97% owned by the German VAG group.

Someone else noticed that maybe some 5% of the shares were "in play"
and yet more were being sold. But there were only 3% of the shares liquid in the
market! So they started mopping up all these shares that were being sold.

Of course, when the deals came to close, the sellers couldn't deliver. And
because the MAJORITY of trades were blowing up, the market regulators got
involved - "what's going on?". And because I think short-selling and
failing to deliver is illegal in Europe, the bank behind it got found and
crucified.

If you want a modern take on shorts and stock manipulation (and a laugh) watch
the film "Trading Places". Especially at the end, where the
"baddies", thinking they know what's going on, are buying stock to
corner the market. Meanwhile the "goodies" sell into the rise ... aiui
that sort of manipulation was just "business as usual" as the 19th
century rolled into the 20th in America.

Cheers,
Wol

[ Reply to This | Parent | # ]

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