Ameritrade Warns That NASD Inquiry Is Risk to Datek Deal
By Gaston F. Ceron
Dow Jones Newswires
NEW YORK -- Ameritrade Holding Corp. (AMTD) said a regulatory inquiry into alleged improper day-trading activities by clients of a unit of Datek Online Holdings Corp. could pose an obstacle to Ameritrade's pending acquisition of Datek. ADVERTISEMENT
In a recent regulatory filing, Ameritrade said the National Association of Securities Dealers has told Datek's iClearing unit that it believes iClearing allows its clients to day-trade in cash accounts without requiring full payment for each purchase of securities prior to their sale. According to the filing, the NASD told iClearing that such activity is prohibited and must cease.
Ameritrade, an online broker based in Omaha, Neb., said in the filing that it and iClearing "do not believe that the specified trades are prohibited" and they intend to "vigorously pursue steps to verify the correctness of iClearing's position." These steps will include talks with the NASD, but may lead to a legal challenge to the NASD's position, Ameritrade said.
A spokeswoman for Ameritrade declined to comment beyond what the company said in the filing. A spokeswoman for the NASD also declined to comment. A spokesman for Datek, an online broker based in Jersey City, N.J., didn't immediately return a telephone call seeking comment late Wednesday.
By "specified trades," Ameritrade is referring to its and Datek's practice of allowing cash-account clients to use the proceeds from the sale of paid-for securities to buy other securities on the same day and in advance of the actual receipt of proceeds from the settlement of the sale of the paid-for securities. This cycle follows the initial purchase of securities funded with cash deposited in an account, Ameritrade said.
The NASD, however, is concerned that the specified trades may constitute "free riding," a term that refers to using the proceeds of the sale of a security to cover the cost of its prior purchase, a violation of Federal Reserve and NASD rules, Ameritrade said.
Ameritrade said it and Datek believe that the NASD's concerns are incorrect. IClearing, Ameritrade said, told the NASD that the specified trades don't constitute free riding, pointing out that "iClearing requires that funds for the initial purchase be deposited in the cash account before the purchase can be effected."
Ameritrade said in the filing that the NASD could choose to bring a disciplinary action against iClearing and possibly other firms, including a unit of Ameritrade, that also allow clients to engage in specified trades.
Ameritrade said that NASD approval of its merger with Datek "could be delayed or denied" as a result of the NASD's inquiry.
The merger could actually be completed before NASD approval is obtained -- Ameritrade is holding a special shareholder meeting on Sept. 5 to vote on the deal -- but the NASD could seek to impose restrictions in the interim and could even ask that the merger later be unwound. Ameritrade said it and Datek would contest these actions if they came to pass.
News of the NASD's inquiry was reported earlier Wednesday by Bloomberg News. |
