Thursday August 8 6:10 PM EDT
NASD Settles SEC Probe of Nasdaq Practices
WASHINGTON (Reuter) - The Securities and Exchange Commission Thursday announced a settlement with the National Association of
Securities Dealers of the agency's probe of alleged malpractices on the Nasdaq stock market.
In the settlement, NASD, parent of the computer-based market, agreed to be censured and to take steps to prevent the repeat of
alleged trading abuses on Nasdaq.
In addition, NASD agreed to spend about $100 million to upgrade its surveillance systems so the SEC can review whether Nasdaq
dealers execute trades fairly.
In a report on its investigation, the SEC slammed the Nasdaq, saying it ``has not always operated in an open and freely competitive
manner.''
``Nasdaq market makers have engaged in conduct which has resulted in artificially inflexible spreads between dealer price
quotations for many Nasdaq securities and unduly disadvantageous prices to investors trading in those securities,'' it said. Market
makers are firms that deal in a stock.
NASD agreed to a 14-point plan to be implemented in the next 12 to 24 months. It mainly calls for the association to strengthen its
disciplinary role over Nasdaq dealers and to insure that the boards of NASD and its subsidiaries have at least 50 percent
independent, or non-industry, members.
In settling with the SEC, the NASD neither admitted nor denied the findings by the agency, which is the usual language used when
the SEC settles enforcement cases.
The settlement ends a nearly two-year investigation into NASD, which had been criticized for laxity in regulating its dealers, also
known as market markers, on the Nasdaq.
While the SEC and the NASD considered the settlement fair, critics of Nasdaq said it fell short of what was needed to reform the
market and improve protection for investors.
Bill Singer, a partner at the New York law firm of Singer, Biennenstock, Zamasky, Ogele & Selengut, said public investors, small
broker-dealers and potential Nasdaq issuers ``were left out in the cold and virtually abandoned.''
Singer called the settlement ``a plaster job where a wrecking ball is needed,'' adding the SEC ``leaves in place the same
self-regulatory system which allowed the violations alleged to have occurred.''
The SEC's resolution of the case against the association follows an unprecedented settlement last month of a separate investigation
by the Department of Justice into alleged price-fixing by dealers on Nasdaq.
In that settlement, 24 of the nation's largest brokerages agreed to tape traders' telephone conversations. Justice Department
investigators could listen in as calls occurred. In addition, the department will open a hotline to receive investors' complaints about
Nasdaq.
The brokerages neither admitted nor denied any wrongdoing in the settlement with the Justice Department.
Widespread criticism over the situation forced NASD to appoint an independent panel led by former New Hampshire Senator Warren
Rudman to recommend changes and refurbish its tarnished image.
Among the criticim was a charge that Nasdaq spreads, or the difference between bid and ask prices, were wider than those on
other markets, such as the New York Stock Exchange.
The practice, Nasdaq critics said, has skimmed millions of dollars from investors while lining the pockets of Nasdaq dealers and
traders.
Some of the most significant recommendations of the Rudman panel have already been adopted. The NASD has restructured,
separating its operations under two subsidiaries. The first regulates the nation's more than 500,000 stockbrokers while the second
runs Nasdaq.
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NASD settles SEC probe of Nasdaq practices
The Securities and Exchange Commission announced Thursday a landmark
settlement with the National Association of Securities Dealers of the
agency's probe of alleged malpractices on the Nasdaq stock market. In
the settlement, NASD, parent of the computer-based market, agreed to
be censured and to take steps to prevent the repeat of alleged trading
abuses on Nasdaq. In addition, NASD agreed to spend about $100 million
to upgrade its surveillance systems so the SEC can review whether
Nasdaq dealers execute trades fairly. |
