Jitney is a broker that is able to perform stock exchange trade on behalf of another person who is not able to. The concept also refers to a stock trading that is fraudulently done to increase stock volume. As such, the fraudulent trading may involve only 2 brokers that are trading stocks back and forth in order to earn more commission thereby increasing their volumes of trade.
A Little More on What is Jitney
In the first sense, ‘Jitney’ refers to a broker who has insufficient stock volume to maintain a trader on the exchange market, who would give its orders to a large execution dealer. This could be done fraudulently to create an impression of more brokerage interest in a stock.
In an alternative sense, ‘jitney’ may refer to circular trading in which a fraudulent practice is conducted to show that a stock has liquidity. This may, in turn, induce others to buy the stocks. Penny and IPOs stocks may be susceptible to such practice, serving to give the impression of intense interest in a particular stock.
An example of how jitney works is the case of John Smith and Jane Doe. Both individuals may decide to drive up the demand for stocks in company XYZ that trades on the OTC markets. In order to achieve this, Smith buys 2,000 shares of stocks and sells them to Doe who then sells the back to Smith and the cycle continues. Each time that they trade the shares, the trading volume of shares reported increases by 2,000. Soon, investors recognize the spike in the trading volume then decide to invest in the stocks.
Jitneys are illegal because they distort the market. The term ‘jitney’ comes from the slang term for something that has cheap and poor quality.
References for Jitney
Academic Research on Jitney
- Anonymity, frontrunning and market integrity, Comerton-Forde, C., & Tang, K. (2007). The Journal of Trading, 2(4), 101-118. This study investigates the systematic frontrunning concept in regard to Toronto Stock Exchange and how anonymous orders can help to conceal frontrunning. The authors find that there is no proof of widespread, systematic frontrunning activity, with only few brokers considering the activity. Although proprietary traders use anonymous orders more frequently than their clients, their overall use is low with no evidence of systematic use to conceal frontrunning. The authors also find that there is a positive correlation between the frequency and magnitude of frontrunning with broker size, sell-side orders, large orders, and informed client orders.
- Notice of Proposed Changes and Request for Feedback: CSNX Markets Inc.-Changes to Order Allocation Methodology for Jitney Trades, Ontario Securities Commission. (2011). This is a published Notice of Proposed Changes in OSC Staff Notice (21-703) in regard to jitney trades. The Notice, Transparency of the Operations of Stock Exchanges and Alternative Trading Systems, invites market participants to provide their feedback to the proposed changes. The key change announced was that Jitney markets would not prohibit firms from participating in cross interference matching and firm priority. The notice then elaborates on two types of crosses considered: unintentional and intentional crosses. The former, according to the notice, entails a system that search out crosses before trading other orders in the trading book. Intentional cross, on the other hand, could be executed between the bid/ask in regard to UMIR.
- Competition’s Moment: The Jitney-Bus and Corporate Capitalism in the Canadian City, 1914-29, Davis, D. (1989). Urban History Review/Revue d’histoire urbaine, 18(2), 102-122. This paper investigates the common occurrence of jitney-bus in Canada’s urban areas between 1914 and 1929. The authors outline how these common carriers flourished during World War I, but soon became suppressed by municipal regulators. Their removal weakened the jitney-bus phenomenon by depriving it of being speedy, flexible alternative to private automobile. The authors reveal the importance of a modern jitney context and the reasons for the social groups behind the WWI.
- Jitney Regulation in New York, Powell, R. R. (1916). Cornell LQ, 2, 93. This article discusses the Jitney regulation and how it impacts the transportation sector. According to Powell, New York state adopted a policy of regulating and limiting new entries into certain public utility fields in 1907. The policy influences public utility fields’ creation that was later occupied by enterprises. According to the section 25 of the Transportation Corporations Law, individuals who own or operate a stage route constructed wholly or partly long a highway in any city of more than 750,000 people would be deemed to be included within the term “common carrier” and would be expected to obtain a convenience and necessity certificate for operation. The author further discusses the impact of this law as well as the subsequent amendments proposed in the latter years.
- Comments on the Food Marketing Institutes’ Submission to the FTC Titled “Supermarket Merger Investigations and Remedies”, Cotterill, R. W., & Center, D. F. M. P. (2002). (No. 27). University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy. This article provides an overview of the Food Marketing Institutes’ Submission to the FTC. The author cites the Federal Trade Commission workshop that was held in 2002 to address the merger investigations and remedies of the commission. During the workshop, the Food Marketing Institute prepared a white paper that addressed issues of the commission with an intent of highlighting two issues: the question asked by the FTC in its request on merger and acquisition and the policies and procedures of set by the commission for ordering divestitures as a condition for approving supermarket mergers. The authors also acknowledge that one needs to recognize that the Food Marketing Institute do not speak for all retail and wholesale food products, and they do not speak for consumers.
- IIROC Rules Notice–Notice of Approval–UMIR–Provisions Respecting the “Best Price” Obligation, Ontario Securities Commission. (2009). This IIROC Rules Notice outlines the approval of the provisions that respect the “Best Price” obligation. The Interim Amendments to the Universal Market Integrity Rules became effective as from 2008, May 16. In particular, the amendments provide that Market Regulators should accept that participant have made “reasonable efforts” in line with “best practice” obligation compliance if: the participant uses an acceptable order router, the participant entered the marketplace order that ensure compliance, or the participants providers an order to another participant for marketplace entry.
- CSA Notice and Request for Comment: Proposed Amendments to NI 23-101 Regarding Order Protection Rule Review, Ontario Securities Commission. (2014). CSA Notice and Request for Comment: Proposed Amendments to NI 23-101 Regarding Order Protection Rule Review. This is a proposed amendment by the Canadian Securities Administrators to the National Instruments 23.101 Trading Rules. The amendment also addresses the Companion Policy 23-101CP with a proposed methodology. According to the notice, the purpose of the amendment is to address certain costs and inefficiencies that emerge from the current OPR framework through the following key areas: OPR application, best execution policies and disclosure, and trading fees. Most significantly, the amendment has been proposed to change the definition of “protected bid” and “protected offer” which include orders that are displayed on marketplaces that exceed or meet the threshold of the market share. Further, the Annex A of the amendment states the proposals that do not need changes.
- Public Utility Regulation, Higgins, R. T. (1928). Conn. BJ, 2, 94. This article outlines the public utility regulation as proposed by the Public Utilities Commission of Connecticut. The commission, which constitutes 3 members and 16 employees has several roles that are subdivided among key departments: legal, engineering, jitney/motor bus, accounting, secretarial and clerical. The author outlines the prescribed procedures and roles that the commission laid out to enhance public utility management. Further, several utility companies are outlined including their rights and privileges.
- Market challenges and government failure, Tabarrok, A. (2002). The Voluntary City, edited by David T. Beito, Peter Gordon, and Alexander Tabarrok, 405-34. This article by Tabarrok outlines the challenges of an open market as well as government’s failure to implement regulatory measures that can promote trade.
- Back to Basics: A Pro-Growth Public Investment Strategy, Kotkin, J. (2007). New America Foundation. This paper discusses the key concepts of pro-grown public investment strategy. The author acknowledge that for over a decade, rising asset prices have driven economy, benefiting the wealthy but putting less effort towards improving the economic statues of the US. Rising stocks and housing prices have also been noted to stagger increase in wealth. Thus, the author proposes a robust job feather, and enhancing the nation’s energy, communications, and transportation infrastructure. By also investing in renewing and creating critical public goods, the government is able to provide opportunities to all income classes.