Here's what the NY Times had to say about order execution:
May 5, 1998
Drug Stock Joins List of Wall Street's Wildest
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By FLOYD NORRIS
ntremed Inc., a small biomedical company that might -- or might not -- have drugs that could
lead to a cure for cancer, went wild Monday in Nasdaq trading, rising $39.75, to $51.81, with
volume reported at a level well above the number of shares outstanding.
The trading in the stock was perhaps more chaotic than any in
years, with the highest prices -- more than $80 a share --
coming in the first two minutes after the market formally
opened at 9:30 a.m.
But market makers -- the brokers who execute trades in
stocks -- continued to report trades at that price for most of
the day, saying they were trades that had occurred in the first
two minutes but had not been reported on time. Far more
such trades were reported late than were reported on a timely
basis. And a number of trades appear to have been reported
late but not indicated as such.
The lack of timely trade reporting, at best, indicates that
systems at Nasdaq or at individual brokerage firms were
unable to cope with the activity. At worst, the delays could be
an indication that some brokers overcharged customers by
pricing the stock at levels not justified by the current market in
the stock.
The frantic activity followed an article Sunday in The New York Times concerning progress in curing
cancers in mice through the use of two drugs, angiostatin and endostatin, which Entremed is trying to
produce and market.
Although the article warned that previous treatment methods that had worked in mice had sometimes
failed in humans, it clearly whetted the speculative appetites of many investors, who bid up the share
prices of many small companies pursuing cancer-breakthrough treatments.
The leap in Entremed shares -- of more than 300 percent -- was highly unusual for any stock, and
reflected the fact that relatively few shares are outstanding and available for trading. Of the
company's 12.4 million shares. more than 3 million are owned by insiders. But volume reported on
Nasdaq Monday came to 23.5 million shares.
Unlike the New York Stock Exchange, which delays the start of trading in stocks until it is able to fill
all orders -- a policy that can keep stocks that figure in the news from opening for an hour or more
-- Nasdaq is a market of individual market makers, any of whom can execute a trade at any time, so
long as that trade is within the bounds of the market. After the market opens at 9:30 a.m., those
bounds are indicated on machines that show the best bid price -- the price at which someone is
offering to buy the stock -- and the best asked price -- the price at which someone is offering to sell
the stock. Normally, no trade should be executed outside that range.
Before the 9:30 a.m. opening, market makers can post prices at which they are willing to buy and
sell a stock, but those quotes are not binding on the market makers until 9:30. Knowing the market
price before that time is thus not easy, and subject to possible influence by market makers who post
quotes they need not honor.
On Monday, hundreds of trades were executed in Entremed stock, and reported to Nasdaq as
having been completed before the market opened at 9:30, at prices that ranged from $18.625 to
$85. Early in the morning, some such reports were delayed because Nasdaq systems rejected the
prices as unreasonable for a stock that had traded at $12.06 on Friday. But at 8:41 a.m., said Beth
Weimer, a vice president of Nasdaq's Market Watch division, Nasdaq turned off that system for
Entremed stock. As a result, Ms. Weimer said, all trades submitted to Nasdaq were reported
promptly. She said NASD Regulation, a regulatory organization, would review the late trades for
possible problems.
That chaos continued after the market opened. The first trade reported after the formal opening was
at $83, and a trade at $85 quickly followed. But it soon became clear that the market could not
sustain those prices, and the price began to slide. The highest asked price for the stock fell below
$80 at 9:31:34, less than two minutes after the market opened. No trade should have been executed
at or above $80 after that time.
Under the Nasdaq rules, trades are supposed to be reported promptly, and if a trade is not reported
within 90 seconds of when it occurs, it is to be marked as out of sequence.
But 11 trades that crossed the tape at 9:37 or later -- five minutes or more after the last time a trade
above $80 could have been executed under Nasdaq rules -- showed prices above that limit, and the
trade information made no mention of any delay in reporting the trade.
Including those trades, 157 trades, totaling fewer than 90,000 shares, were reported on a timely
basis at prices of $80 and above. But there were more than 850 trades, with a total volume of more
than 450,000 shares, reported on a delayed basis as having taken place above $80 while the market
was open, presumably in the first 94 seconds of trading.
Those figures were compiled from Nasdaq trade reports carried on Bloomberg Financial Markets.
The vast majority of the trades that were reported late were for fewer than 1,000 shares, many for
just 100 shares. Institutional investors normally trade in larger blocks, so it appears that many of
those who paid the highest prices were individual investors.
The public reports do not show which market makers reported trades late. Allen & Co., which
underwrote Entremed when it went public in 1996, at $15 a share, has been the largest market
maker in the past. But Allen officials did not return telephone calls seeking information on the trading
Monday.
In some ways, the trading in Entremed Monday was reminiscent of recent trading in several small
stocks that have zoomed, on very high volume, after announcing plans to do business on the Internet.
K-Tel, the most extreme of them, went from $6.625 to $67.75 in less than a month, including
Monday's leap of $19.75.
But for a one-day move, there are few if any precedents for Entremed's leap. It will be months, if not
years, before it is clear how much the company is worth. In the meantime, Monday's trading makes
it clear that work needs to be done to make Nasdaq trade reports more timely and accurate.
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