SEC Halts Trading on Spam Driven Stocks

goombah99 writes "The SEC has taken action to halt transactions on spam-touted stocks. Presumably this opens an opportunity for denial of service attacks on stocks. However, to be effective spam generally must target penny stocks with historically low volumes and thus the actual capitalized market impact or effect on the companies for a temporary shutdown can be expected to be negligible and transient. One example was given of a touted apparel stock jumping from 6 cents to 45 cents over a period of days before settling down to ten cents a share and near 65,000 or about $6500 in transactions (an eighth of the peak share volume, and a 50th of the peak transaction value). In other words, the market distortion of a brief shutdown, even if it were a DOS attack, would be massively less than the integrated spam surge. The thing I found surprising was that for this to be an effective measure with human oversight then the number of such events must be relatively small in number. From the amount of spam I get I'd have guessed it was a tidal wave."

Comments

some things to remember re: microcap/pink sheets:

[artifex2004]

1) these are companies that can't get listed on regular exchanges. Either they're too new or small to afford the fees, or they don't have the financials that the exchanges require.
2) this is a big one: the market makers may not report every single transaction and every price change, or every minute or hour. You're used to seeing the market change, and having updated info pretty quickly after a trade. "Real time level 2 quotes" and all that. Guess what? These are thinly traded. Some report daily. Some report every couple of days. Some report weekly. Unless you check, you don't know. If you see stock trading for 5 cents one week and 25 cents the next week, you don't know if it really is going up, or if it went to 10 dollars in the middle of the week, and all the pumpers jumped, and 25 cents is the reported figure on the way back down. You just don't know.

Go here for some more information. Really. Don't think about these without being sure you know the risks.

(Also, I have to say, while the information I gave in #2 was deemed correct when I worked for a broker, I was never a licensed broker myself. So don't take my word for it still being completely true. I see that a company called pinksheets.com offers what they say are real time quotes now for dealers, but they're neither a NASD broker-dealer nor SEC-registered, so... who knows what that means? Ask your broker and do your own research. Be sure and ask your broker what it means when you try to sell "at market" on a pink sheet, too, if you're assuming you're going to be able to get out quickly :) )

Re:Pro-spam server

[symbolset]

They have this. It's called hotmail.

Wrong answer to problem

[winkydink]

All this does is give bad guys a new way to extort money from companies. "Hey, Mr. CEO! Wire $50k to my egold account by Friday or I'll send pump&dump spam and get trading suspended on yoru company's stock."

The right answer is to unroll these trades and see who is profiting. Then start doing some analysis on the brokerages associated with these trades, because I'm willing to bet we're talking about "less reputable" brokerages. Now pull their securities dealer's license. Do you think that would cause other brokerages to look more carefully at sudden large volume trades on previously thinly-traded stocks? I do.