On January 24, 2022, it was reported that global stock selloff losses were near $3 trillion. It should be noted that part of this stock (inventory) moved from institutional customers, such as pension funds and large trading firms, to the accounts of NYSE Designated Market Makers (DMM) and Supplemental Liquidity Providing Firms (SLP-Prop / SLMM). In the coming weeks part of the inventory accumulated by the DMM and SLP firms will be sold to corporations who are initiating corporate buyback programs. This buyback process will run until March 14, 2022. As corporate buyback programs progress, DMMs and SLP firms will raise prices of their inventory and institutions, large trading firms, retail investors, etc., will start buying. When DMMs and SLP inventories are depleted they have the option to sell short. During the next decline DMMs and SLP firms will cover their short positions while buying stock (inventory) from institutions and large trading firms at a lower price. This process of inventory control was explained in Richard Ney’s books published between 1970 and 1975. The following document provides some insight to the process as well. On page 10 it states that Market Makers must track their inventory to ensure they are not taking undue risk or encroaching on capital limits.
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