Specialists for OTCBB and Nasdaq Companies
By William Cate
Published June 2000
[http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
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/globalvillageinvestmentclubwelcome/]
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/globalvillageinvestmentclubwelcome/]