Market Maker Manipulation Petition

hilltop

Market makers can manipulate the spread so that buys show as sells and vice-versa. The current stock exchange spread rule misleads investors and needs changing to protect investors.

Please Google "Market Maker Manipulation Petition" to access this petition and help put a stop to this dishonest practice by sharing the website on your social media.

Being new, I could not post the link directly. Can an established user please reply showing the link? Thank you.

Pincher

https://petition.parliament.uk/petitions/112044

george4064

I do know what you mean, but it doesn't bother me personally that much..

Thrugelmir

george4064 wrote: »

I do know what you mean, but it doesn't bother me personally that much..

Agreed. Previous trades are now transparent. Never had an issue.

bowlhead99

hilltop wrote: »

Market makers can manipulate the spread so that buys show as sells and vice-versa. The current stock exchange spread rule misleads investors and needs changing to protect investors..

The price, volume, and time of reporting of a transaction, together with a reporting code, is published and freely available. The bid/offer spread for NMS across the relevant market makers/brokers can change in a split second based on how much each MM says they are willing to buy or sell and what price. Those spreads are tracked too.

But buys do not 'show' as sells on the reporting system or vice versa because no information about whether it was a buy or a sell is published. In some cases, settlement of a trade is simply 'rolling over' a position and effectively someone is selling to themself less the broker's cut. The one person is the buyer and a seller. A market maker can sell stock to another market maker to clear down their net exposure or for other reasons and there is both a buyer *and* a seller (that is after all what a market is). So, when the price of a trade is published, the reporting system is not told whether it is a buy or a sell.

All that happens is that when the information is published about what time the trade was reported and what the price was, some software services will make a guess for you as to whether the transaction was a buy or a sell based on how close it was, relatively, to the bid or the offer price at that time. Which is a sensible way for them to try to make a guess - but it is not even an educated guess, it's just a basic formula. Sometimes that guess will inevitably be wrong.

If you rely on somebody's published 'guess' of how the trade might have been instigated, when you are trying to read the tea leaves on how to beat the market, you have to take the rough with the smooth. You have probably sometimes made trades yourself when the price you were given was closer to the published bid than the offer even when you were buying - and vice versa when selling- it's something that can happen quite often when there are large orders in the book or some momentum one way or another. And as you know this is a possibility even before you look at the tea leaves, you are free to make your own judgements and guesses on what you think might or might not have been the underlying broker trade that sparked the transaction.

The market maker's role is to make a market in the stock so that you can buy and sell to someone whatever day you want. This may result in buying stock from you that nobody really wants, or being in possession of stock that lots of people really want, and the prices change accordingly. When investors or traders get outcomes they don't expect or want ( a kind way of saying, 'when they lose money'), they will be quick to blame market makers for manipulating the market. Even if they make money they will blame market makers for creating a market (sorry, manipulating the market) in a way that ensured the investor would make less than they 'deserved' to make.

If you rely on prices reported after the fact because you weren't watching what all the MMs were doing in terms of being on the bid or offer or neither, and you try to guess what happened and why, before guessing whether a price of 101p is a buy or sell, you have to accept the information is of limited use. If you like the company at the price it's being offered, buy it, and if not, sell it. To demand that every possible underlying piece of information you might want (including not just what the people participating in the market or making a market are doing, but why) is routinely published, could be an implausible and crazy burden on the industry.

The maker of the petition is looking to engage with parliament but has not even bothered to proof read his text for obvious spelling mistakes let alone properly articulate the problem or an alternative solution. So, I didn't sign it.

grey_gym_sock

as bowlhead says, the buy/sell indicator is just an automated guess. are market makers deliberately trying to manipulate that guess? well, that's not quite the right question, because informed participants are aware that it's just an automated guess.

would it be more transparent to add an explicit buy/sell indicator to all trades? actually 4 possible values would be needed, to cover MM-to-MM trades, and non-MM-to-non-MM trades (e.g. somebody selling their stock to their own ISA, with the MM acting purely as a conduit), as well as the more obvious MM-to-non-MM (a "buy"), and non-MM-to-MM (a "sell").

perhaps that would be a good idea. but would it transform the relative information available to retail customers vs MMs, allowing MMs to skim off less profit? i don't believe it would. MMs will always have more information about the flow of trade; 1 extra piece of info won't allow amateurs to compete with them. for that reason, i don't think this is a suitable thing to ask for in an online petition. i see it as a minor technical matter, not a point of principle.

a bit of cynicism about how MMs operate is perfectly sensible, given the finance industry's appalling ethical record. but i don't see any smoking gun here. in any case, i'd assume that trading costs probably include some element of unidentified rip-off, and would therefore trade as rarely as possible.

grey_gym_sock

another point: fuller reporting about trades on the official stock exchanges is all very well, but is there any point in it when there are also "dark pools" - i.e. other trading venues, which don't report on trades at all?

also, i think it is institutional investors, not private investors, who are more likely to be ripped off. they have the issue of trying to sell/buy a large block of securities, so large that their trade may move the market price. small investors can just carry out their trade at the current price, without making the price move.

there has been some suggestion that institutional investors have been encouraged by banks (who run "dark pools") to put their trades through those venues, in the hope that they can sell to other institutional investors, while not disclosing how much they're trying to sell/buy, and hence without moving the price so far; but that these "dark pools" are actually also used by actors whose entire purpose is precisely to figure out what the institutional investors are doing, and hence to make as much money as possible at their expense.

so perhaps a better requirement would be for all trading venues to be obliged to report trades as transparently as the more traditional stock exchanges do.

(and perhaps institutional investors should stop being so stupid as to believe anything banks try to sell them, especially when it has such an off-putting name as "dark pools" )

hilltop

bowlhead99 wrote: »

But buys do not 'show' as sells on the reporting system or vice versa because no information about whether it was a buy or a sell is published.

Thank you for your excellent overview and to Pincher for the link.

I use the London South East bulletin boards and they publish latest trades showing as a buy or sell depending on the mid point of the average spread at the time of the trade. I do not subscribe to sophisticated level 2 information due to cost though this is recommended if you often trade in shares.

Brokers know factually if a trade is a buy or sell so they could link this information to the London Stock Exchange. This would only require a small software update to add a suffix B or S to the current trading flags. London Stock Exchange have resisted any moves to implement this hence the petition (warts and all).

I agree that dark pools etc. can be used to circumvent transparency but the petition is a first step to get the matter debated. That may lead to further measures to clean up the AIM market.

bowlhead99

hilltop wrote: »

Brokers know factually if a trade is a buy or sell so they could link this information to the London Stock Exchange.

Well, to over-simplify it, if you are a buyer then someone else is a seller to enable you to acquire the shares. So the report is simply "a transaction is occurring".

As you mentioned, you choose not to pay for "sophisticated information". If you don't want to pay to see the order book, why should the government force people to let you have it for free? Other people don't want to see the full sophisticated information which would help them interpret trades more accurately, but you are proposing that someone provide you with more information reliably for free, which implicitly means they have to pay for it, through increased costs somewhere.

This would only require a small software update to add a suffix B or S to the current trading flags. London Stock Exchange have resisted any moves to implement this

Maybe it's because you are oversimplifying the fix and underestimating the time and cost of implementing a solution (or overestimating the benefit for those you expect to implement it)?

ChemistDude

Every sell is a buy and every buy is a sell. Use fundamental analysis before investing. Never used level 2 never will.

Biggles

Oh dear, more market maker paranoia. Where do you get this idea they make buys show as sells and sells as buys?

Various websites show trades as and when they are reported. Some websites choose to place their own interpretation on a trade, usually deciding that if the trade price is higher than the apparent mid-price it's a 'Buy' and if below it it's a 'Sell'. But the whole thing is thrown out by swift changes in bid and offer prices and by delays, for various permitted reasons, in the reporting of trades.

They are just trades and these unreliable interpretations are best ignored completely. If you are relying on them to buy and sell shares, it's no wonder you are losing money.

In any event, even if it struggles to reach 10k signatures, I don't know if the government respond to petitions that are unclear due to misspellings.......