I happened to stumble on a discussion about NASD Rules on another thread.
When I noticed a link to a NASD Online Manual I had to check a few things out. I recalled some snakey stuff in there and wondered if it was still in. For example, the 5% Rule. I was just mentioning to someone my recollection of how some "less than scrupulous" firms took advantage of a Rule that was designed to prevent the firm from overcharging on commissions.
SO anyway, I was running my mouth on it in a P-Mail so I thought I would copy it over here for a comment.
(Boring night, reconstructing the wheel (so to speak), as most of my old screens are shot. The new programs require them to be re-built.)
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.............on the NASD Manual. I was curious to read parts of it. Some of the stuff in there has been pretty well twisted around over the years. I recall one Boiler Room, for example, that would use the "5% Rule", which is listed under the Commission Structure section, to charge customers 5% over and above the Offer.....even when they made a Market in the stock....
So in other words, let's say the stock was offered at $6.50 and bid at $6.125
They make a Market, so they are Buying at $6.125, selling it out to you at $6.50, and then charging you $0.325 in commission. So, you've just paid $6.825 for a stock which, if you turned around and dumped it right away would net you
$6.125 less the 5%, or $0.30625, for a bottom line of $5.81875
In other words, even though the spread was 3/8, the commission made the spread over a dollar. A spread of over 15%
This wasn't too long ago, right before the discounters came in. Yet the Rule is still on the books and has been since 1943. The NASD MMs know how to finagle the Rulz.
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I recall at the time I reasoned it was no wonder the NASDAQ had such a bad reputation. Of course, it was the bucket shops that were doing this. But if the bucket shops could do that, I wondered what the larger firms were getting away with by using the Rules for leverage. |
