so everybody has a pretty good intuitive idea that when you ban short selling on an asset, the price of said asset goes through the roof. but what is the actual mechanism that really made stocks spike so hard today? the answer lies in how market makers operate. normally, they have an exclusion from the pre-borrow requirements that apply to mortals like you or i. with the sec 799-stock banned short sale list, however, they effectively revoked this pre-borrow exclusion for any stock on the list that a market maker is registered in. that meant that unless a market maker was already long a particular stock, it could not enter a sell order. This is particularly problematic for market makers, AS THEY ARE REQUIRED TO MAINTAIN TWO SIDED QUOTES AT ALL TIMES if a market maker withdraws quotes, they risk being removed from their privileged status for up to 30 days. this created an all out rush for the long side this morning from any firm that wasn't already long a stock they were making a market in. it was either bid or lose your status. this is why we saw such whacky moves this morning (best example i've found is ZION, 50 to 100 to 40 by 10am, feel free to post more) now which is more damaging to the system as a whole: someone selling short to maintain a fair price, or someone being forced to buy a stock at $100 that will trade for 40 fifteen minutes later because the sec engaged in market manipulation on a massive scale? for more like this visit my blog @
This is a good post, but it would only explain why those 799 stocks rallied hard and were so volatile. Why did everyone else rally?
The market is moving in lock step because it's make or break for whole the system... they either sink together or swim together. That has been how this week had played out.
I'm not even sure anyone is trading anymore... it looks just like automated trading back and forth in a small range for many equities.
Gamma. I suggest you look as to how gamma changes as we approach expiration...and the effect that it has in the face of a large price jump.
"This is particularly problematic for market makers, AS THEY ARE REQUIRED TO MAINTAIN TWO SIDED QUOTES AT ALL TIMES if a market maker withdraws quotes, they risk being removed from their privileged status for up to 30 days. " Being low and/or high man on the totempole is not a violation. There are 2-sides to the intervention as well. :eek: Osorico
with reading comprehension like that you won't be a rich bear for long ;-) market makers, BY DEFINITION, have to be willing to buy AND sell all the time. even 30 seconds without 2 sided quotes counts as a unexcused withdrawal and subjects firms to multi-day waiting periods before they can enter quotes again. that combined with the fact that they couldn't short financials meant that anyone who wanted to maintain their status as a market maker (i.e. be willing to buy and sell simultaneously) had to already BE LONG, OR GET LONG hence the mad dash for the upside comprende?
while i will no doubt incur the wrath of everybody with too much time and too little money, i feel the need to correct my mistake (but nobody picked it out so i don't feel so bad) IN MY HASTE I DID NOT NOTICE THE EXCEPTION TO BONA FIDE MARKET MAKING IN THE SEC RELEASE this means yesterdays blow out was poor long-short equity funds. that also means that market makers KILLED it yesterday, they were the only people able to short the banks and take advantage of the 50% range most financials rolled thru boost to the investment banks profits next q? my b, i was seduced by the simplicity of my model and its explanatory powers. curiously it still made me money let the flaming commence