Dale, apparently a lot of investors were taken advantage of on Monday. Read on.
Regards,
Tom
Wednesday, December 02, 1998
Nasdaq market makers come under fire
Questionable practices
Ian Karleff
National Post
Bloomberg / NAVARRE CORP.: NAVR/NASDAQ INTRADAY: (See
print copy for complete chart/graph).
Monday's Internet stock carnage was a direct result of the Nasdaq Stock
Market's illiquidity, investor greed, and some questionable trading practices
by those who make the market, traders say.
Investors complained bitterly that many Nasdaq orders to buy stock were
being executed by market makers -- specialists responsible for matching buy
and sell orders -- before the session opened on Monday at prices
considerably higher than the previous session's close, while many sell orders,
at or slightly below the asking price, were not immediately filled, contrary to
the norm.
Navarre Corp. (NAVR/NASDAQ), for example, closed on Friday at $12
(all figures in U.S dollars) and reopened Monday at about $27.
Doran Ghatan, who manages about $40-million for offshore investment firm
Unicorn Funds in Nassau, Bahamas, claimed that investors who wanted to
buy the stock at the open paid up to twice Friday's closing price, but those
who wanted to sell at, or just below the opening price level, did not have
their orders filled within a reasonable time frame.
Investors expressed their dissatisfaction over delayed sell executions on
America Online's Shark Attack chat forum. And in Canada, Jeff Mulligan, a
trader at Priority Brokerage Inc., said he "had two or three sells where
confirmations came back way too late."
Bobby Weiss, an independent New York trader who manages more than
$50-million for high-income investors, said the problem stemmed from a
handful of Internet firms being traded directly between brokerages and
market makers -- outside the Nasdaq's automated trading system.
"Basically, [market makers] work in collusion," Mr. Weiss said. "They know
they have buy orders, open a stock as high as they can and then just let the
price drop," before filling sell orders, he said.
Mr. Weiss said the market makers fill the buy orders at the highest possible
price, often with stock they borrow, knowing they can buy it back later at
lower prices.
Scott Peterson, a Nasdaq spokesman, confirmed there had been problems
with the exchange's trading system Monday, but said there were "no trades
pulled from automatic trading." He said about 12 Nasdaq firms were
affected.
"We have a team working on it now and are hoping to have a solution
shortly," said Mr. Peterson.
Mr. Weiss said many investors who placed orders online to buy stock "at
market" found that because buy orders were being executed at prices up to
twice Friday's close, it often triggered higher margin calls from their brokers.
Brokerage houses are becoming more reluctant to fund Internet stock punts.
Over the past two weeks, a number have raised margin requirements -- the
amount of cash an investor must have on deposit in order to buy or sell
stocks using borrowed money -- on the most volatile of Internet issues.
Ameritrade Holding has increased its maintenance margin percentage of a
stock's value to 50%, from 30%, for about 25 Internet stocks.
Toronto-Dominion Bank's discount brokerage Waterhouse Securities Inc.
also has raised margin requirements on 12 volatile Internet stocks, including
Earthweb Inc., K-Tel International Inc. and theglobe.com, while Bank of
Montreal's Investorline said that Internet stocks not included in the S&P 500
were subject to a 50% cash requirement, rather than the usual 30%. Etrade
Inc. and SureTrade Inc. also have lowered the amount they will lend for
certain Internet investments. |
