RE: MMs in trouble ??3 Jun 2026 07:39
This is AI’s take on the transcript I fed it from AB’s interview. It is how I assumed it was going on but it does a pretty good job at explaining how it can happen in theory, who knows if it is.
AI
To understand Andrew Bell's accusation, you have to look at the unique dynamics of micro-cap stocks (companies with very small market caps, like Red Rock's £2 million valuation) and how market makers operate in those illiquid environments.
Here is a breakdown of how a market maker could execute the exact playbook Bell is accusing them of, why it's considered "illegal" or predatory, and how a corporate placing (share issuance) factors into it.
1. The Setup: Naked Shorting and "Phantom" Shares
In highly liquid, large-cap stocks, if you want to short a stock, you must first borrow the shares from someone who owns them, sell them, and buy them back later at a lower price.
However, in tiny micro-cap stocks, there are often very few shares available to borrow. This is where market makers have a legal loophole that can be abused:
The Market Maker Exemption: Market makers are legally permitted to sell shares they don't own or haven't borrowed temporarily. This is called naked shorting.
The Reason: It's supposed to maintain liquidity. If a sudden wave of buyers comes in, the market maker can sell them "phantom" shares immediately to keep the market moving, with the legal obligation to find and deliver real shares a few days later (clearing the trade).
2. The Abuse: Driving the Price into the Dust
Bell accuses these entities of abusing this loophole to run massive, permanent short positions.
Because micro-caps have very low trading volume, if a market maker continuously floods the market with naked short sales, the artificial oversupply of shares aggressively drives the stock price down. If they do this long enough, the stock price crashes, retail investors panic-sell, and the market maker makes a massive profit.
3. The Trap: Good News Creates a "Short Squeeze"
The market makers' strategy works perfectly—until the company releases massive, game-changing news (like RRR's $21 million DRC housing contract).
Suddenly, a flood of genuine buyers rushes into the stock.
The stock price gaps upward.
The market makers, who owe thousands or millions of shares they sold at rock-bottom prices, are suddenly facing massive, compounding financial losses.
Because the stock is illiquid, they cannot simply buy the shares back on the open market to cover their short positions without driving the price up even higher, making their losses worse. They are trapped in a short squeeze.
4. The Escape Route: Bailing Them Out via a "Placing"
This is where the broker's phone call to Andrew Bell comes in.
To save themselves, the trapped market makers or institutions will go to a broker. The broker calls the CEO and says: "Hey, we have a client who wants to invest. Would you like to do a placing? You issue new shares to our client at a set price, and you get ins
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