Market makers make "deals" with the shorts??

[Option Trader]

Is it true that shorts are able to make a deal with the MM's to accumulate shares for them which they then pass on to the shorts for a certain mark-up?] i.e. they are often "at work" for the shorts?

Aside from confirming this information, would appreciate if someone has a website link about this. Thank you much.

 

[Option Trader]

This is real serious information for traders, and the person who told me about this was quite definite about what he was saying. It's surprising that so far nobody knows anything about such a serious thing.

 

[ProfitTakgFool]

Why is this so serious? It's actually common practice. Hedge Fund A calls Prime Broker and says, "I want to sell 500,000 XYZ short at said price. Can you get me the shares?" MM will go out on the market, and assume the risk of collecting the shares, and then provide them to Hedge Fund A at said price.

Quote from Option Trader:

This is real serious information for traders, and the person who told me about this was quite definite about what he was saying. It's surprising that so far nobody knows anything about such a serious thing.

 

[tradestrong]

Quote from ProfitTakgFool:

Why is this so serious? It's actually common practice. Hedge Fund A calls Prime Broker and says, "I want to sell 500,000 XYZ short at said price. Can you get me the shares?" MM will go out on the market, and assume the risk of collecting the shares, and then provide them to Hedge Fund A at said price.

Yep...nothing unethical about it. That's one of the reasons they are called "market makers".

 

[Option Trader]

So you are saying that if you're dealing with a stock with a huge short position & the shorts are feeling a bit pressured, chances are that they pass their burden on to the MM or MM's.
This is of major significance, because if you are opening a long position (and especially a big position) & your counterparty is the MM, the starting point is the MM's sets their algorithm to work against you--and those algorithm work on an ongoing basis. Hence, you have to hope someone else will get liquidated or dump shares for you to come out okay.

 

[Option Trader]

Quote from ProfitTakgFool:

Why is this so serious? It's actually common practice. Hedge Fund A calls Prime Broker and says, "I want to sell 500,000 XYZ short at said price. Can you get me the shares?" MM will go out on the market, and assume the risk of collecting the shares, and then provide them to Hedge Fund A at said price.

Quote from tradestrong:

Yep...nothing unethical about it. That's one of the reasons they are called "market makers".

Who is it that has this capability? Any prime broker? Or only the MM (which in the case of NYSE stocks means the specialist)?

 

[xflat2186]

Are you under the impression they're hiding trades or not printing large blocks as they make back room deals and move stock?


If you're a large institution you may parcel out blocks of stock to several institutional brokers who all have reciprocal deals with liquidity providers (aka market makers and others).

If they’re looking to get into a short position they have to have the shares from somewhere to borrow.

 

[Option Trader]

Quote from xflat2186:

Are you under the impression they're hiding trades or not printing large blocks as they make back room deals and move stock?


If you're a large institution you may parcel out blocks of stock to several institutional brokers who all have reciprocal deals with liquidity providers (aka market makers and others).

If they’re looking to get into a short position they have to have the shares from somewhere to borrow.

The main concern would be to avoid brokers who offer MM services (or prime brokerage services?), and to avoid brokers who get paid for order flow to certain MM's--at least for situations like the one I mentioned about short positions.

 

[xflat2186]

Quote from Option Trader:

The main concern would be to avoid brokers who offer MM services (or prime brokerage services?), and to avoid brokers who get paid for order flow to certain MM's--at least for situations like the one I mentioned about short positions.

Every broker has payment for order flow deals, soft money deals and kick back deals. They're all legal, how do you think they can offer such low fees?