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tchauncy

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tchauncy

Re: Imperial Whazoo post# 1749

Friday, 10/27/2006 3:44:13 PM

Friday, October 27, 2006 3:44:13 PM

Post# of 43518
whazoo- I think I did get more in depth on that subject a few months back.

What you are referring to is "Month End" for Market Makers and Funds. Most (about 75%) Market Makers and Funds use the "last settlement day of the month" to "Mark to the Market" their long and short positions. If I am a Market Maker for a brokerage firm I am primarily being compensated by my "trading profits or losses". For example if I end the month short 300,000 share of a stock that I shorted at say a dime and it closes at .07 on my closing day, I will show a $9,000 profit on my books. By Brokerage firm will probably give me 25% of that unclosed position as a bonus. But if the stock closes at say $.13, then my firm will dock me against my other profits at least 50% and maybe more of the amount I am underwater. This is pretty much how it works with MM's. But there is a similar effect, but not nearly as much involved with Hedge fund Managers.

So you can see why there might be an incentive for Fund Managers and MM's to play Month End Games.

BTW, the 25% or so that don't use last Settlement Day, Elect to use Last Trading Day of the Month. But once a firm makes an election on which day to use, they have to stick with it every month. So it is possible to get a smaller "Month End" effect on the last day of the month.

So for that reason,
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