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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….

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