Stock Investment

Stock Investment  » Welcome

Specialists for OTCBB & Nasdaq Stocks

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/]