SEC Investigation Cites 30 Market Makers For Fraud
Ahhaha, earlier you made this statement flatly denying that Market Makers or Specialists ever break rules or that they even was possible to do so. You said:
"I was an MM both firm and floor. NO ONE breaks the rules. It isn't in an MM's interest to do so. If an MM does, their expected return declines. Aside from that, it isn't possible to break rules or manipulate."
ARTICLE ON SEC CHARGES (one of many examples)
willywizard.com
Market maker manipulation is not just conjecture, no matter how
MMs try to hide their activities. The SEC investigated and charged 30
of them with fraud and violations of the Act.
In Release No. 34-40900, the Securities Exchange Commission
published the findings of an investigation of market maker practices
that began in 1994, and instituted proceedings pursuant to Sections
15(b) and 21C against 30 market-manipulating firms and individuals,
and the repercussions are still resonating.
This SEC release was the source of the taped telephone
conversations OTC News Network ran earlier this week. They are
part of the SEC investigation and part of the record.
“The most common form of violative activity uncovered by the (SEC)
staff’s investigation was the coordinated entry of bid and/or ask
quotations by market makers into the NASDAQ system for the
purpose of artificially affecting the price of subsequent transactions,”
the investigators said. “Such coordinated activity constituted market
manipulation in violation of the antifraud provisions” of the Exchange
Act.
The manipulative conduct of the market makers, according to
the SEC release, “was intended to increase the market makers’
trading profits or otherwise advance their proprietary interests,
often at the expense of their customers and other market
participants.”
The SEC investigation uncovered “anticompetitive and improper
practices” by market makers in violation of certain provisions of the
federal securities laws.
“Nasdaq market making firms and their traders” the investigators
charged, “coordinated their trading and other activities with
other market makers to create false or misleading appearances
in, or otherwise artificially influence, the market for various
Nasdaq stocks.
The manipulative modus operandi: One market maker would ask
another to move its quoted prices in order to create a different
appearance to the market from which the requesting market maker
could benefit.
For example, a market maker needing to buy stock because of a
short inventory position, would ask another market maker to
move his quote downwards to join the inside ask. The purpose
of the requested quote movement was to signal a downward
price trend. That way, potential sellers would be misled into
reducing their price expectations. After the quote movement, the
requesting market maker would buy the stock at a lower price,
at the expense of the seller.
That constituted market maker fraud, SEC investigators charged, in
violation of Section 15(c)(1) of the Exchange Act and Rule 15c1-2
thereunder, and the prohibition against fictitious quotations provided in
Section 15(c)(2) and Rule 15c2-7 thereunder.
Market maker manipulation – MMM – saw MMs failing on three
scores: (1) to provide the “best execution” of customer orders,
intentionally delaying trade reports, (2) to honor their quoted prices,
(3) to create or maintain required books and records.
Market maker misconduct was typically, but not always, limited in
duration and scope to intraday violations relating to particular stocks,
but cumulatively had a detrimental impact on the fairness and efficient
functioning of the Nasdaq market.
The SEC charges relate specifically to Nasdaq stock trading, which is
supposed to be closely regulated. Just imagine what the MMs did
when no disclosure was required, as with OTCBB stocks.
The investigation also leads one to surmise that the cancer of MMM
is far more widespread than originally believed, and that these
arrogant “pros” aren’t smart enough to make money in the
market legally.
Each of the market maker respondents submitted an Offer of
Settlement which was included in the SEC’s Orders Making Findings
and Imposing Sanctions, and which the Commission agreed to
accept. The SEC added that all of the respondents did not engage in
every type of violative conduct described.
For the list of “respondents” and the text of the whole investigative
report, go to www.sec.gov and Release No. 34-40900.
Though that phase of the SEC effort was completed, the ramifications
continue.
Published by OTCNN.com
By Jack Burney
06/16/2000 08:30 AM CST
SEC site with over 16,000 references to Market Makers
sec.gov |
