Market Maker Collusion

Discussion in 'Trading' started by kean, Feb 6, 2003.

  1. kean

    kean

    I play a few tier two/three stocks consistently. The volume is between 200-400 thousand. I've noticed funny bids and offers appear and leave 5-15 levels away from price level 1 and sure enough within a short time the price approaches these levels. I now believe these are market maker signals to those in the know that they have a buy or sell order in hand and believe they have enough stock to move the price to a certain level. I believe this since I profited from this flashing 5-6 times since I became aware it was likely. It usually happens between 10-3. Which ever way the stocks immediately break after this I long/short it and don't cover until it approaches the levels I've seen the flashses at.The stocks usually move 50-cents to a dollar. It sounds crazy but I'm pretty certain this is happening. They're screwing the entity who gave them the order or fleecing the daytrader.
     
  2. please explain what you mean by funny bids and offers.....
     
  3. qdz2

    qdz2

    No doubt, manipulators like Enron have encoding system to pass along coordination information to each other by signaling patterns of bid/ask/price/move etc.. Figure that out, one will win huge with them. But it is difficult. You must be in the circle.

    :p
     
  4. kean

    kean

    By this I mean ecn bid/offers with corresponding volume so far down the levels that there intention is to convey information, I think. This flashes a few times and then the action is usually not far behind.
     
  5. You better be careful... You'll end up like Julia Roberts in "The Pelican Brief" for discovering this.
     
  6. Tea

    Tea

    In the 1980's the Nasdaq market makers used to call up other market makers who were cutting into the wide spread and yell on the telephone "moo goo gai pan".

    This meant quit narrowing the spread. This was actually recorded by the SEC and was part of the billion dollar settlement.

    The real collusion is in pit trading. If someone cuts in front and narrows the spread - everyone can see who is doing it and they stop trading with that person. No order flow. It goes on to this day.
     
  7. They are already accused of collusion by ... the prestigious Journal of Finance :D

    http://fisher.osu.edu/fin/journal/jfidd.htm


    THE BIG NOISE FROM COLUMBUS: THE JOURNAL OF FINANCE BREAKS THE NASDAQ SCANDAL, Investment Dealers Digest, May 22, 1995. (excerpt follows...)

    If you think the Journal of Finance is just another dusty, ivory-towered publication for egghead professors, ask the Nasdaq Stock Market. Last year the Journal accepted for publication a study of Nasdaq spreads by two assistant professors. Then the fireworks began.
    The paper, by Vanderbilt professor William Christie and Ohio State Professor Paul Schultz, pointed to alleged tacit collusion by Nasdaq market makers. The article caught attention of the popular pres, and the ensuing stories triggered dozens of class action lawsuits by lawyers on behalf of investors. Then the Justice Department, which also read the article, launched a massive anti-trust probe of the Nasdaq market.

    "Nobody expected this to happen," says Rene Stulz, the professor who edits the 50-year old publication from Columbus, Ohio.

    But it's not the first time a Journal of Finance article made waves. In 1992, the Journal published a paper by two University of Chicago academics, Eugene Fama and Ken French, disputing the value of the famous volatility measure, Beta. The led to headlines across the globe proclaiming "Beta is dead" and some handwringing at investment shops that based their portfolios on Beta. Stulz says dozens of papers are still rolling in trying to refute the original paper.

    The editors of the Journal could also smirk when the first Nobel prizes in economics were awarded to financial economists. The work for two of the winners, Harry Markowitz and William Sharpe, had appeared there also. As for the third winner, Merton Miller: "He's an associate editor," says Stulz.

    If the Journal can't exactly move markets, it has enough real world impact that Stulz counts many Wall Street investment banks and money management firms among his 8,000 readers. Five issues a year will only cost you $57.

    If you haven't done original research, don't bother sending in an article. Only about 6% to 7% of submitted pieces ever get published (6.4% to be exact, says the professor); at that, the Journal charges $70 just to read your paper.

    Nasdaq learned this the hard way when it submitted a rebuttal article to the Journal and got rejected. This rejection did not escape the attention of the lawyers suing Nasdaq market makers. In fact, they included in one of their briefs. "A lame industry rebuttal has been rejected twice by the Journal of Finance, once on peer review, and again on appeal to the editors." (Nasdaq has since gone to hire a group of well known economists, including Miller, to prepare studies refuting the original paper.

    All papers-Nasdaq or academic-get the same treatment.
     
  8. Some investors are also making a lawsuit against them for collusion saying that the spread is abnormal because of competition it should be narrower. I could have the article somewhere.
     
  9. it's ironic that nasdaq gets the blame when NYSE specialists blatantly do this with no fear of reprisal...presumably under the guise of an "auction market"

    sweeping the book is proof of this bullshit

    and so is not showing the real bid/offer
     
  10. you should say: "sweeping the book is proof of this blah blah blah"
    Now let's grill a healthy meal and go in a ring and knock each other unconscious
     
    #10     Feb 6, 2003