Quindell - Pseudo-Automatic Market Makers and Algorithms

Good evening,


I've discussed before my ardent love for Quindell plc, so I'm going to put that to one side and focus on a short selling strategy that the likes of Roble S.L and others could well be using to manipulate the market and increase their profit potential.


I actually discussed the concept of Automatic Market Makers in a post from this morning that can be found here for those interested and this leads nicely on from that:


http://themaskedstocktrader.blogspot.co.uk/2014/11/what-are-market-makers.html


As I said in that post, Automatic Market Makers (AMMs) are part and parcel of the world of High Frequency Trading (HFT) and are effectively used to force large orders that have split up and put through via algorithms to execute towards the higher end of the price ranges sent by the algorithm in question.


My theory regarding Quindell is that parties with major short interests are performing biweekly "rinse and repeat" procedures on the stock, in part through the use of preventative orders (refilling the order book with sells after significant purchases to prevent the SETS system from ticking up the share price substantially), but also via the use of pseudo-AMMs.


With having a sort of pseudo-AMM in place (I'm calling it a "pseudo-AMM", because it's not actually used in the market making process in this case, but operates on the same principals), institutions with a short interest in the company could take advantage of the third party showing of trades and increase their profitability:


Trades are reported to the stock exchange accurately as buys or sells, but the third party platforms that many people use take the trades and the spreads through the day, to come up with an assumed buy or sell reading depending on the price of that trade and its position within the bid/ask spread at that point.


By using some form of pseudo-AMM, large institutions can ping back and forth to make sure that their "real" buy trades are filled at prices that fit the mid point or below of the spread, thus making them appear as sells, or unknown trades to the majority of retail investors.


Combined with filling the bid side of the order book to cause downwards pricing pressure, this allows the three following points:


1. The subtle accumulation of large numbers of shares through split algorithmic orders (being on the other side to an AMM, as it were).

2. The accumulation of shares within price ranges that misrepresent their real status in the order book.

3. The suppression of the share price and thus the demoralisation of retail investors.


Food for thought...


The Masked Stock Trader