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Author: yodaorange Big red star, 1000 posts Feste Award Nominee! Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 77317  
Subject: The One Share Club Date: 2/8/2013 6:59 PM
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Regular REITsters might recall that Yoda was a charter member of the one share club. Several times in 2010 and 2011 I bought/sold one share of REIT preferreds. Today, I renewed my membership in the one share club for 2013. This morning I noticed that one of the $ 25 par issues we owned, had a “stub quote” of ~ $33.00 to sell shares. Stated differently, there were NO shares for sale at a reasonable price.

I placed a sell order for ~ $1.00 above the current buy/ask price. 100 shares immediately filled at that price. What it says is that the buy order on the other side of the trade was not a market order, but apparently a limit order with a very high price. Had it been a market order, it would have filled at $33.00.

Yoda rule number 1 of REIT preferred trading has always been:

“Friends don’t let friends buy/sell REIT preferreds with market orders.”

Yoda has added rule number 2, as a result of today’s trading:

“Friends don’t let friends buy/sell REIT preferreds with limit orders with RIDICULOUS limits set.”

If we had only learned one new trading rule, it would have been a productive day. As it was, the story gets more INTERESTING. Many hours later, on the same sell order, someone bought 1 share at the ask price. This is proof positive IMO that the buyer was NOT the market maker algorithm. It had to be some trader that happened to notice that the ask price was way too high and wanted to get me to cancel my sell order. The trader wanted to enter a sell order at a HIGHER price. He could have entered an order at 1 cent less than my price, but he was not happy with that. He could see that the next order was the $33.00 stub quote. He wanted to sell at maybe a dollar or two higher than my price.

There is NOTHING illegal about the other trader’s order to buy one share. The trader can do that because he uses a platform that has low to zero trading commissions. Most individual investors pay $5 to $10 per trade, so they would NOT trade like this.

What I STRONGLY suspect but cannot prove is that the trader is NAKED short selling. Naked short selling is where you sell shares you do not own or have not borrowed. To my knowledge, REIT preferreds are NOT supposed to be shortable on any platform. NAKED short selling is illegal, but rarely enforced. My guess is that the trader was going to NAKED short sell the shares and then attempt to buy them back at a lower price the same day.

But there’s more!

One minute after the one share trade occurred, somebody bought an additional 100 shares at the same high price.

Ten minutes later, another 200 shares traded at the same high price.

Other than the one share trade, somebody had to place three separate buy orders for these trades. There is no way to say if the trades were done in one account or multiple accounts.

The other remote possibility is that some Algorithmic trading program had a bug and place the three trades without human intervention. Kind of like the Knight trading fiasco on a small scale.

Makes for one of the stranger trading days Yoda has personally experienced in REIT preferred land. . .

Thanks,

Yoda
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