I own a very thinly traded security that I wish to sell. Instead of placing a market order to sell at the ripoff bid price available from the market maker, I'd like to place a sell order between the bid and ask price and have a relative who is willing to do so buy at my offer price using his own brokerage account. Is there any problem involving the potential violation of collusion, market manipulation or price fixing laws if this is done?

I can't really speak to the relative issue (though I've gotta think it's fine at whatever price both parties decide upon if it's a private transaction and neither of you are involved with the company in question), but how about putting in a Good-Till-Cancel limit order near the ask price with the hope that someone will hit? Even though securities can have wide bid/asks, trades tend to go off near the mid point, unless it's a distressed buyer/seller coming in.

I agree that putting in market orders for illiquid securities is almost always a bad idea, but that's not the only way of transacting in the public market.

The Bad News: You are technically not allowed to place an order into an open market with the intention of soliciting a trade to a specific counter-party. This is called a pre-arranged trade and it's a no-no (under both under securities and tax law). An acid-test is 'did you expose the order to market-risk?' Another is 'did you enter the order with an agreement (either express or implied) to receive an execution from a specified counter-party'... (Yes & No, respectively)

The Good News: There's no reason why you need to do this with a registered security. It is YOURS. You OWN it. You may sell it to anyone, for any price, and for any reason (and bear the tax consequences or benefit). Your broker will give you **** for it- like you may be required to put the stock in your name (not "street" name) and contact the company and have them send you a cert and call their transfer agent blah blah blah... Oh they'll charge you, too- but not too much (though more than commissions)....

On one you may never be caught, the other is likely to be a PITA. Let your conscience be your guide...

Thanks Patmcgroin.

Quote:

An acid-test is 'did you expose the order to market-risk?' Another is 'did you enter the order with an agreement (either express or implied) to receive an execution from a specified counter-party'... (Yes & No, respectively)

Suppose it's perfectly OK with me if someone else other than my relative buys my security, and I tell my relative to wait at least a few minutes before he buys at the price that I offer. Would that be sufficient exposure to market risk to immunize myself against any accusations of illegal activity?

It's not legal by the second criteria. Both must be satisfied.

Cross the stock in the market at a price which 'makes sense'. Perhaps between the bid and the offer, for instance.

Give up the buy side to your relatives broker.

Once again, a PITA, but other than the private sales mentioned above....basically reregistering the shares, this is the simplest method.

It is done all of the time at the institutional level where one fund at Fidelty, for instance, wishes to sell the shares, and another fund at Fidelity wishes to buy the shares. Usually they pay a small commish on one side.