Market Mover
Page 25
* A well-functioning stock market doesn’t just facilitate trading of any given equity; it also helps determine its price. If you want to know the true price of any asset, the best method is an auction-style interaction, where a group of buyers and sellers all come together in one place and enter bids and offers, until eventually a price prevails. However, that type of auction is dependent upon sufficient volume—there has to be enough activity to arrive at a legitimate price. If there are only two or three people in the auction, you’ll never get a trustworthy accounting. It’s the same with stocks.
* Technically, the SEC and FINRA—the financial regulatory authority that grew out of the combined regulatory arms of both NYSE and Nasdaq—were overseeing these institutions, but the SEC played the primary role.
* I attempted to lay out my concerns in a Wall Street Journal op-ed published December 8, 2004. Titled “Millions of Momentary Monopolies,” the piece explained to the public why mandating “best price” might sound good in theory but in reality could create problems—as it did, in the long run.
* In short selling, an investor borrows a stock from an owner (paying a nominal fee) and sells it for a profit. If it then goes down in price, the investor buys it back and returns it to the original owner. The difference between the price earned from selling it at a higher price and buying it at a lower one is the profit earned on the short sale.