How to List Your Company in the Penny Stock Market
Small Business and the SEC. If you just looked at this Level 2 screen from a supply and demand perspective, things would look great. Dilution is most noticeable when a market maker shows a certain amount of shares at a specific price, but sells much more than the amount shown soaking up size.
What are Market Makers and Why Are They Important?
These include having at least one market maker sponsor the stock, filing of Form and registering with the SEC. Not all penny stocks listed on the pink sheets are required to provide information to the SEC. Therefore, it's likely that your company's stock is not subject to the same federal regulations of stock trading that govern stocks on the big exchanges.
For example, the OTC Pink follows federal guidelines in requiring companies to put forth financial information when first offering securities to the public. However, the OTC Market service does not require the information to be kept current. Educated investors might not trust paid promotions of penny stocks, as some companies hire individuals to promote penny stocks of questionable value. If your company runs an advertising campaign to attract investors, potential investors may require transparency in the financial records.
Under Federal Trade Commission guidelines, an individual or company being paid to promote a stock should disclose this information as part of the promotion. Vicki A Benge began writing professionally in as a newspaper reporter. A small-business owner since , Benge has worked as a licensed insurance agent and has more than 20 years experience in income tax preparation for businesses and individuals. Video of the Day.
Dilution hinders a stock from running and can push the price down as well. Dilution is most noticeable when a market maker shows a certain amount of shares at a specific price, but sells much more than the amount shown soaking up size.
For example, VFIN may be showing 10, shares for sale but actually selling hundreds of thousands. When I see a market maker who is infamous for dilution on a level 2 screen, it is a red flag. I view dilution on a level 2 screen the same way I view a resistance level on a chart; price levels that will be hard to break.
So, why is this significant? If you just looked at this Level 2 screen from a supply and demand perspective, things would look great. Analyzing the market makers allows you to understand that there is probably a lot of supply around. The stock chart confirms this. Notice how the stock cannot break above. Every time it gets close, it is pushed back down as traders realize that it will be hard to break that price level.
To me, this means the stock has room to run up to that level, however, by this point it was too late. Many traders already got their shares for cheaper and have less motivation to push the price up. He's a buyer too. As soon as the bids all dropped away, the asks from other MMs and internet brokers all fell below his.
The MM I was sitting with also bought 1, shares at that slightly lower price. He posted the shares to that broker for his client at the original, higher price which was the limit price for the order.
Collusion at it's finest. If caught, handcuffs could replace their Rolex for a trip downtown. We can attest that many market makers will use certain signals. When watching larger stocks, market makers from large firms will often bid for shares when they actually want several thousand shares. Market makers are in the game to make money as well as execute orders for their firm's clients. If you do see a huge bid or ask - thousands of shares where it's not usual it's often a fake.
That is, they really don't want to execute that trade but are actually trying to scare others and to move the stock the opposite way that their bid or ask would indicate.
If the stock happens to trade closer and closer to that larger bid or ask, it will usually disappear. Smaller stocks and penny stocks are rife with that type of dishonest manipulation on OTC markets.
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