Sounds familiar huh? A near certainty of a bankruptcy yet the common equity of CIT trades over $1. There once was a day when bankruptcy rumors would send a stock spiraling immediately into penny status. But recently, we’ve seen more than a few bankrupt names trade above $1 for quite some time (closed at $0.98 but trade over $1 for most of the day). Joe Saluzzi thinks he knows why:
CIT had some awful news out this morning. The stock was halted right after the opening and once reopened it tanked almost 50%. But then a magical thing happened, the stock traded back to $1 from a low of $0.75. What is so magical about $1? Any stock that trades under $1 is not eligible for a liquidty rebate from the exchanges/ecn’s. The cost to trade sub $1 stocks is FREE but you don’t get the rebate. But if the stock gets over $1, the the liquidity rebates which could be as high as $.003/share kick in. So, it appears that the high frequency traders will be desperate to keep this stock above $1 today so they can keep collecting those rebates. There is no fundamental valuation for $1, it is simply a matter of high frequency economics.
I don’t know how true these allegations are, but this is 100% manipulation if it’s the case. You have to wonder when, if ever, the SEC will start looking into the HFT rumors….