Bogart Beck on SLCAPEX Circuit Breakers and Market Makers

After a first full day of trading that saw HI-FIve™ (HIFI: SLCAPEX) plunge almost a dollar from it's high of L$1.25 before SLCAPEX Circuit Breakers halted trading only a few hours into the trading day, anothe lively round of discussion took place about the philosophical and fundamental mechanics of Circuit Breakers and Market Making.

In a single trade one unnamed investor sold off almost 18,000 shares, plunging the price from it's stable range on the Limit Buy side of approximately L$1.05 to L$0.20 before trading was halted. The SLCAPEX and HIFI(SLCAPEX) forums then became the scene of discussion as to the specifics of the trade--and the allegation that it may have been an attempt at intentional market manipulation--and grew to encompass the ongoing debate on Market Making.

Bogart Beck provided a lenghty insight into the specifics of how the SLCAPEX system currently works, stating, "From a technical standpoint, our implementation of Automatic Circuit Breakers is actually quite basic. Our Breakers TRIP based on a simple calculation of share price %UP or %DOWN versus the daily OPENING ASK for each listed company."

"The two actual percentage (%) variables (+/- 0.00 to 999.99 %) per stock are monitored and managed by SL CapEx on a daily basis and are adjusted based on the general volatility of each individual security and overall market sentiment."

"For security purposes and to prevent potential widespread market manipulation we DO NOT DISCLOSE the actual Break points on any stock (even to Market Makers or CEOS). Generally, one can expect that we set ranges somewhere between 25-75 %DOWN and 50-200 %UP although under certain market conditions even those ranges can be tweaked radically."

"Honestly, it's a delicate task; some stocks here typically trade within relatively tight ranges (Bid/Ask Gap) and are generally stable against the overall market even at large daily transactional volume levels while other stocks here are wildly volatile regardless of volume, pricepoint or Bid/Ask Gap."

"As a result, generally we tend to TIGHTEN the break points each month during the Financial Reporting Period (approximatley the 1st to the 10th or so). This is designed to help prevent large GAPS UP or DOWN when there is substantial risk of individuals being able to trade on "non-public" material information or attempts to exploit "immediately published" information before it is widely disseminated."

"We also have a tendency to somewhat loosen the Break points after the fifteenth of the month when the markets have a propensity to run a little more freely and "NEWS" has a tendency to be more Marketing or Sales oriented."

"While one might be tempted to call this purposeful intervention "manipulation" we conversely feel somewhat obligated to help level the playing field for those participants who play here only part-time and can't sit 24/7 parked on the ticker."

The debate continues, and a ground of understanding--where the integral parts that day traders, long term investors, and market makers all play in the biologic function of a viable and active market--has yet to be reached, but the hope is that as the market grows that effective measures will be found to support all sides and prevent price drops by putting a range of tools in place to absorb sell-offs.

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