Jitney
What Is a Jitney?
In finance, the term jitney alludes to a broker that doesn't have direct access to a exchange and subsequently depends on one more broker with exchange access to execute their trades.
The term can likewise be utilized to allude to a type of market manipulation in which brokers trade securities to and fro with each other to earn commissions and falsely produce the presence of high trading volume.
Figuring out Jitneys
Contingent upon the unique situation, the term jitney can have a neutral or a negative meaning. In the principal example — a broker depending on one more broker to execute transactions — there is nothing fundamentally inappropriate occurring.
Be that as it may, a few brokers have been known to conspire with each other to falsely produce commission incomes or probably delude other market participants into misjudging the level of market interest in a specific security. This is finished by over and over buying and selling a specific security between at least one brokers, consequently generating increased transaction volume.
Contingent upon the idea of the scheme, this method — which is otherwise called circular trading, account churning, or a "jitney game" — can be utilized to create commissions, swell the market price of a security, or start a sell-off by different investors. Frequently, these schemes are fixated on securities with exceptionally thin liquidity and [market capitalizations](/marketcapitalization, for example, supposed penny stocks. As well as being unlawful, these practices are naturally disliked by clients and different investors, which can in this manner give the term jitney a negative undertone no matter what its contextual importance.
Real World Example of a Jitney
XYZ Corporation is a brokerage firm with direct access to a major exchange. To create extra business, they here and there execute trades in the interest of a jitney client, ABC Financial.
Albeit these transactions are permissible all by themselves, these two firms likewise some of the time take part in additional questionable practices. For example, XYZ and ABC at times make rehashed transactions between their two firms to scrounge up extra commission incomes for themselves. Successfully, this practice comprises of taking from their clients.
Different practices which the firms now and again participate in incorporate buying and selling thinly traded securities, for example, penny stocks, more than once buying and selling their shares between each other at always expanding prices. Assuming the liquidity in the stock is adequately small, other market participants may be tricked into accepting that the rising price of the shares addresses genuine market interest, consequently drawing in outside buyers. XYZ and ABC will then, at that point, sell their shares to these new buyers, taking a gain.
In different occurrences, the two firms will execute a comparable scheme however in the reverse direction. Rather than executing at consistently expanding prices, they will do as such at steadily diminishing prices. The goal in this transaction is scare different owners of the security into selling their shares, offering XYZ and ABC the chance to buy a large number of shares at a falsely low price.
These supposed "jitney game" practices amount to market manipulation, and they are disallowed under United States laws and regulations.
Highlights
- One is generally uncontroversial, alluding basically to a broker that depends on one more broker to execute their trades.
- The term jitney has two implications, contingent upon the unique situation.
- The other definition has a negative implication, alluding to brokers that connive with each other to take advantage of their clients and other market participants through different schemes.
