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What is a Jitney?
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.
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How Does a Jitney Work?
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.