NASD ... ... William ... June 2001To contact the author: Visit the Beowulf ... website: ... ...
NASD Brokerage Commissions
By William Cate
Published June 2001
To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]
Investors pay a commission and a spread whenever they buy a NASD
stock. This is true about stocks trading on the Over-the-Counter Bulletin
Board (OTCBB). It's true of Nasdaq stocks.
NASD brokerage commissions can't exceed 5%. Investors are
stampeding to the Net to save on brokerage commissions. Few brokerage firms still charge 5%. However, Net traders pay less than 1% brokerage
commissions.
What investors don't realize is that there's a spread. This is the
commission charged by market makers. The NASD doesn't regulate the spread. It can be 25%. What difference does it make if an investor saves 4% on
brokerage commissions and pays 25% on the spread?
Investors believe that the Bid/Ask prices represent the highest Bid
and lowest asking price for any stock. In reality, the Market Maker sets
the Bid & Ask prices. The pricing structure benefits the short term cash
needs of the Market Maker to make money. It's rare to have a Market Maker
that trades a company's stock for the benefit of the company or the public.
Let's assume that the highest bid is one dollar in an OTCBB stock.
The Market Maker can show the highest bid as seventy-five cents. If the
lowest ask price is seventy-five cents, the Maker makes the trade. However,
the bidder pays one dollar for the stock. The Market Maker keeps the
quarter per share as their spread. The result is the buyer has paid over a
25% commission on the sale of the stock.
Maker Makers can buy stock for their own account. If there's strong
Bid demand, the Market Maker isn't obligated to reflect it in the Bid & Ask
prices. This allows the Market Maker to buy shares at lower prices for
their own account. Once they own the low-priced ask stock, they report the
stronger bids. They sell the stock, adding the stock sale profit to their
spread. A heavily traded stock makes money for anyone making a market in it.
The goal of the NASD was to have the Market Making broker act like
a stock specialist on the American or New York Stock Exchanges. It doesn't
work because the NASD broker makes their money buying and selling stock for their own account. The Stock Exchange Specialist makes money by buying and selling shares to maintain an orderly market in the company's stock.
If you are a public company, investigate how your market maker
handles trades of your stock. If they are solely interested in their short
term profit, meet with them. Restructure your agreement so that the Market
Maker makes money, but your company benefits.
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/]
Five Myths About Inflation
A classic definition of inflation is any increase in the money supply. Understanding inflation is vital to anyone seeking investment profits or attempting to build a successful company. As with most basic issues of the global economy, inflation is surrounded by myths and misinformation.
Recession Planning
The clouds of a 2006 Recession are starting to form on America's horizon.Politicians know that Recessions or Depressions are bad for their reelectionchanges. Bad economic times tend to create unemployment among the nice folksholding office at the time of economic stress. You can expect the Governmentto do everything possible to delay a Recession until after the November 2006election. However, the American economy is currently caught in an upwardmoving inflation and a Recession would still the fires of a runawaycurrency. The Real Estate Bubble may be about to burst. And, America'sfinancial institutions appear to be in increasing trouble over failedderivative bets.
African Aid
Africa, like everywhere else in the world, has its fair share of honest, intelligent; hardworking people who want to see their families have a better standard of living. Unfortunately, most of these people are living below the poverty line. The reasons that Africa, with all of its natural resources, is an economic basket case are complex. They start with the 16th Century Africans' failure to adopt an effective immigration policy. The result was the European immigrants divided up the continent without regard to historic tribal boundaries. The modern result has been tribal wars waged with modern weapons from the Sudan to Rwanda.
