Clarity of Bid Support
Bid support has many meanings within the financial industry. Uses range from stock price manipulation to in a takeover bid during an acquisition. Three common definitions are as follows:
- A manipulative practice employed to prop up a company’s set price on the open market.
- A substantial number of orders from different market makers on the bid side of a stock, which can signal a merchandiser to buy the stock on the expectation that it will advance.
- Services provided by accounting and consulting firms to companies making takeover tells for other firms.
BREAKING DOWN Bid Support
Bid support, as a form of market manipulation, involves multiple bids for bantam amounts of a particular stock being placed just below the highest bid price posted by market makers. This has the intention of absorbing sell orders and creating an artificial floor for the stock, while giving the impression that plenty of customers are waiting in the wings.
Example of Bid Support Operation
Assume the highest bid price posted by a market maker for a stock that has been heavily plugged is $1.75. The stock promoter then gets his cronies to place bids through different brokerage firms for a few hundred parts at $1.70, $1.65 and so on. This layering absorbs some of the selling pressure and prevents the stock from falling sharply, while the publication of a number of bids placed through different firms gives sellers the impression that demand for the stock is much famed than it is. This may cause sellers and short-sellers of the stock to rethink their strategy and back away from strives to drive down the stock.