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Market Makers
Market Makers are keenly aware that their firm uses its own capital, research, retail and/or systems resources to represent each OTCBB stock which they make a Market Maker in. Further, their firm competes with other firms to buy and sell the stocks or issues which they represent. Because, there are more than 500 member firms that act as Market Makers, there are some inherent challenges which they face. This paper overviews some of them and what public companies can do as a result of this market reality. The OTCBB: Market Maker Realities 1. Limited Liquidity. Most Bulletin Board stocks are very thinly traded. Thus partial execution of orders or possibly no execution at all is commonplace. In addition, once in a portfolio, owners may have difficulty executing a sell order at their requested price. This can limit the attractiveness of a particular issuers equity to Market Makers. 2. Large Spread Between Bid and Ask. Due to the limited liquidity, some OTCBB stocks may present a larger than normal spread between the bid and ask. This large spread combined with the limited liquidity may severely affect potential profits. Because Market Makers put their balance sheets at risk, the more liquidity the more volume. Even though spreads may tighten thereby lowering profitability per trade, the additional volume will mean greater overall profitability for Market Makers. 3.Extreme Volatility Due to a Small Float. The number of outstanding shares available to trade on the OTCBB market may be very small. This may lead to extreme volatility dependent upon the supply and demand of the stock. By creating public and investment community awareness, issuers may be able to expand float and lower volatility. 4.Market Data Delays. Market data such as quotes, volume and market size may not be as current as expected with Nasdaq or listed securities. This frustration is shared among Market Makers, Issuers and Investors alike. The advent of the BBX in 2004, will alleviate some of this frustration. continued... Want to know more? Download the White Paper "Market Makers" for just $9.95. People who ordered this paper also ordered: |
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