Investment & Financial Articles
Title: Specialists for OTCBB & Nasdaq Stocks
Author: William Cate
Article:
Specialists for OTCBB and Nasdaq Companies By William Cate
Published June 2000
[http://home.earthlink.net/~beowulfinvestments/]
[http://home.earthlink.net/~beowulfinvestments/globalvillageinves
tmentclubwelcome/]
An orderly market should be the goal of every public company.
Sharp rises or falls in share price attract regulators. A
rapidly rising share price feeds upon itself and guarantees a
share price collapse. A sharp drop in your share price creates
selling barriers. When you attempt to revive your strong share
price, your shareholders dump their stock. A steady upward
climb, with minor downward adjustments, keeps shareholders
loyal. The question isn't how high can you drive your share
price? It's how long can you sustain your current share price?
One weapon in your share-price stability battle is the trading
of your stock by a specialist. Most U. S. Stock Exchanges use a
specialist to match buy and sell orders to create an orderly
market. When buying and selling are relatively constant in any
U. S. Stock Exchange company, the market is orderly. Specialist
can be overwhelmed with selling and this leads to a market
correction or a Bear Market. But the matching principle is sound.
The National Association of Securities Dealers (NASD) rely upon
their brokers acting as Market Makers to act as specialists.
This is the basis to the Bid/Ask price structure in the OTCBB
and Nasdaq Markets. The NASD policy doesn't work. The Market
Makers goal is to make money for their brokerage firms.
Share-price stability is counterproductive to profit, because it
reduces trading. The Market Maker needs volume to profit from a
stock. Trading volume infers instability as buyers go into a
feeding frenzy or sellers panic. Feeding frenzies and panics
kill public companies.
If your company trades Nasdaq or the OTCBB, your investor
relations person MUST act as a specialist for your stock. They
must trade your stock to maintain an orderly market in your
share price. Your specialist's job is to maintain the current
share price, not to drive it up. Your specialist should have a
short term goal in restructuring your shareholder base. For
example, EFHCF's current share price trading allows speculators
to sell at a profit. However, my goal is to replace the
speculators with investors who will hold the stock as it moves
up. If I achieve my goal, I'll need less buying to sustain a
higher share price.
Here are five golden rules for specialists seeking to maintain
an orderly market. 1. NEVER discourage a shareholder from
selling their stock. If you succeed, you are only delaying the
sale until your share price is higher. 2. NEVER advise anyone to
buy your stock. Let buyers make their own decisions. Your job is
to help them buy the stock at the current price. 3. Communicate
regularly with your shareholders. Keep your shareholders
informed. BUT, understate the positive events and overstate the
negative events about your company. 4. Use your shareholder
newsletter to regularly remind your shareholders of your help
with selling or buying your company's shares. 5. NEVER call a
potential buyer. Let them call you.
The SEC should change its rules to help specialists. Changes
would allow public companies to act more effectively in ensuring
an orderly market in their stock. Unfortunately any rule change
that would benefit a responsible specialist would benefit a
crook. The crook would use the rule change to steal from the
public and destroy the public company. At present, the crooks
seem to have enough going for them. They don't need more
regulatory help to bilk the public.
To contact the author: Visit the Beowulf Investments website:
[http://home.earthlink.net/~beowulfinvestments/] Or, visit the
Global Village Investment Club Website:
[http://home.earthlink.net/~beowulfinvestments/globalvillageinves
tmentclubwelcome/]
About the author:
He has been the Managing Director of Beowulf Investments
[http://home.earthlink.net/~beowulfinvestments/] since 1981 and
is the Executive Director of the Global Village Investment Club
[http://home.earthlink.net/~beowulfinvestments/globalvillageinves
tmentclubwelcome/]
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