NASD enforcement guy talks:
discuss.washingtonpost.com
<<Washington Investing Live With Jerry Knight
A Q&A With Barry R. Goldsmith
Wednesday, June 16, 1999
Welcome to my biweekly live discussion show on investing. My guest this week will be Barry Goldsmith, executive vice president for enforcement at the regulatory arm of the National Association of Securities Dealers. NASD Regulation is the securities industry's watchdog, overseeing all stock brokers and trading firms as wall as the Nasdaq market.
Goldsmith oversees the prosecution of the NASD's disciplinary proceedings and formulates the organization's national enforcement policy. He has also served as the chief litigation counsel for the Securities and Exchange Commission. Goldsmith will discuss:
How stock market regulators are keeping up with online trading.
The latest in Internet stock scams.
Where to file a complaint against a broker.
How to check out stockbrokers to see whether they've had disciplinary problems.
Barry Goldsmith
I've been covering Washington business as a reporter, editor and columnist since 1977. You can ask me about Washington-area investments.
We will be online Wednesday at the close of the markets to discuss the regulation of the stock market, the issues surrounding merging technologies like online trading, and the Washington investing scene. You can submit questions for us now.
Jerry Knight: Welcome. My guest today is Barry Goldsmith, director of enforcement for NASD Regulation, the regulatory arm of the National Association of Securities Dealers. As Wall Street's self-regulatory organization, NASDR licenses stock brokers and other investment professionals, oversees trading and disciplines brokers who break the rules. Barry, on-line trading has gone from a tiny business to a transforming market trend in only a couple of years. What are the market regulators doing to keep up with all that's going on on the Net?
Barry R. Goldsmith: You are right, Jerry. In the first quarter of 1999, the number of online trades grew a record 47% to over 500,000 per day. As more and more firms develop their online trading and investors realize the benefits, the numbers will grow. Investors need to be informed as best they can about both the mechanics and risks of online investing. Our website, www.nasdr.com contains a host of information about such things as margin, limit orders and execution mechanics.
Jerry Knight: To follow up, what are the biggest issues you're hearing about from individual investors who've decided to get into online trading
Barry R. Goldsmith: We have been getting a significant number of complaints regarding execution delays and orders that are executed at prices that investors don't expect. Many of these problems are normal growing pains that you always have when a new technology is taking hold. We are making sure that firms tell investors about these risks and don't oversell the product and don't create unrealistic expectations.
rockville, md: Is it possible to check up on electronic trading firms, the same way you can about brokers? Am i losing money by placing market orders online? is it better to place limit orders, even if they cost a bit more?
Barry R. Goldsmith: In fast moving markets, investors are generally well advised to place limit orders. That way you know that you will not be paying more for a stock than you want to. We have received a number of complaints from investors who placed a market order at the opening and found out later that it was executed at a price much higher than expected.
This advice applies not only to online orders, but to orders placed the traditional way.
Burke, VA: I am 22 years old and just graduated from college. I am just starting to become interested in the stock market, but I just don't know where to begin my research on how I can choose the right investment for me. Please give me a start so i can start investing early.
Barry R. Goldsmith: Good investing should be careful investing. You are entering the market at time when market indices are at or near record levels. Markets do not always go up and there is no substitute for doing your homework on companies you want to invest in, as well as on your broker. Our website, www.nasdr.com, has an entire section devoted to "Investor Resources" that should give you a good start. Good luck.
Washington, D.C. : Barry,
Who will have enforcement over the NASDAQ trading that will be done in Japan, as per the new deal with Masayoshi Son?
Barry R. Goldsmith: The details of this venture are still developing and a number of regulatory approvals will need to be obtained both here and in Japan. All partipcants are committed to maintaining market integrity for the protection of all investors.
washington, dc: We heard that extended trading hours were around the corner; now they've been delayed. When do you think the extension will happen, and does it raise new regulatory problems?
Barry R. Goldsmith: The question of when and how extended trading will take effect is one that should be answered by a well-coordinated response. It does raise new regulatory questions in terms of having to police the market for fraud and abuse during new trading times. Liquidity will be an issue and we need to make sure that investors who trade during the new time periods are protected. We are carefully studying these issues at NASDR and will be well-prepared for it when it does happen.
East Meadow, NY: What is the most biggest, most scandalous case NASD Regulation has prosecuted on your watch? Do you see any trends in unscrupulous market activity?
Barry R. Goldsmith: I hate to refer to our cases as "scandalous" but we have brought a number of cases that have involved outrageous conduct that has no place in our markets. We have succeeded in putting out of business many of the worst firms in the industry, Stratton Oakmont and Sterling Foster are two of them. Last year we brought more than 1,000 new cases and barred almost 400 individuals from the industry.
Even though these numbers seem large, the overwhelming majority of the nearly 600,000 registered brokers in our industry are honest, hardworking professionals who do a good job for their clients.
College Park, MD: A few months ago, there was a well-publicized incident -the names of the companies involved escapes me at the moment- in which a brokerage thought they had blocks of a hot IPO stock, sold them to investors, and then found out that they DIDN'T have the stock to sell. Is there any kind of penalty for that -other than just making the brokerage return the investors' money-, or are the investors plain out of luck?
Barry R. Goldsmith: While I cannot comment on that particular case, one would have to determine whether this was the result of deliberate or knowing conduct, or was a negligent mistake. In any event, I am afraid that if there was not stock to sell, the investors are out of luck in terms of getting the shares. In appropriate cases, however, we bring disciplinary actions that require firms to make investors whole. In addition, an investor who lost money as a result of a broker's mistake or misconduct can file an arbitration to recover damages.
washington, d.c.: Barry,
There has been much publicity regarding the SEC's Internet task force. How does NASDR go about policing the Internet?
Barry R. Goldsmith: Policing the Internet is one of the most important challenges we face. Our Market Regulation Department traditionally used commercially available search engines to get information about securities which are being looked at because of unusual price or volume movements. We now have a new Internet monitoring tool called NetWatch which is designed to enable us to detect manipulative conduct prior to price or volume movements. The System continuously crawls some 500 Usenet NEwsgroups, issuer sites and investor bulletin boards gathering content. It can also search for key phrases like "You Won't Lose Money" or "Will be feature on 60 Minutes." The Internet is an important avenue for obtaining information relating to most of our fraud investigations.
Jerry Knight: Barry, your response about that question on keeping watch over the Internet raised an issue we've been hearing a lot about: all those stock chat rooms where people trade tips, disect companies and in some cases it seems to me, shamelessly tout their favorite stocks. Any advise for online investors who are visiting the chatrooms?
Barry R. Goldsmith: One thing you have to ask yourself when you read a posting on a bulletin board or in a chat room is what that person's motives may be for saying what he or she is saying. Does the person posting or chatting have a large position in the stock? Is he or she trying to push a stock up or down? Is the person a disgruntled employee of the company just trying to spread bad information? While you can learn interesting and useful information in these forums, the best advice is to take what you see with a grain of salt and look for good solid information instead.
Jerry Knight: Thanks a lot, Barry and thanks to everyone who dropped by today. If you have other questions or comments, you can reach me at knightj@washpost.com>>
|
