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Non-Tech : Datek Brokerage $9.95 a trade -- Ignore unavailable to you. Want to Upgrade?

To: nick nelson who wrote (12800)	7/22/1999 8:31:00 PM
From: RockyBalboa	Read Replies (1) \| Respond to of 16892

It's a two-edged Sword. Maybe it has even more edges. What does one prefer? A single-tier system like NYSE/AMEX? While the NYSE is ok, I can't say that about the AMEX. However, I see that specialists are neutral and do not influence the prices. A multi-levelled, clustered market like the nasdaq system? Many MMs pursuing their own (and sometimes clients) interest? I'm tempted to deem the Nasdaq system to be more efficient because it can be more transparent by the market depth and the MMs working on a best efforts basis, also for their own portemonnaie. On listed exchange, an outside player can influence more, and there may be less possibility to monitor the moves of that outside driver. THe ISLD is indeed feared as a tough competition to markets where individuals are locked out and are somewhat guided by MMs. OTOH the isld changes the Nasdaq character to something like an exchange. It's the order situation which makes it ridiculous sometimes (The often mentioned, "rumoured" fake bids, for example). All that may be true but noone can hinder a MM to participate as bidder on ISLD. Ulimately the parallel maket system should be more efficient than a single exchange. How efficient it is is best seen on the aftermarket auctioning on ISLD.

To: nick nelson who wrote (12800)	7/23/1999 2:16:00 AM
From: Sir Francis Drake	Read Replies (2) \| Respond to of 16892

The assault continues... US investigating Datek. Article in NY Times: nytimes.com <<U.S. Is Said to Investigate Datek Trading By GRETCHEN MORGENSON EW YORK -- The U.S. attorney for the Southern District of New York is investigating trading activities at Datek Securities that took place as recently as two years ago, according to an official close to the case. Details of the investigation, begun in recent weeks and still in the most preliminary stage, are scant. But it is said to involve trading activity at the firm using NASDAQ's Small Order Execution System, set up in 1984 to facilitate the buying and selling of NASDAQ stocks by individual investors. Robert Bethge, chief marketing officer of Datek Online Holdings, said: We have not been informed that Datek Online is a target of any investigation. We have received a document subpoena from the U.S. attorney, and we are cooperating fully with the U.S. attorney's office." A spokesman for the U.S. attorney's office declined to comment. Datek Securities Corp., based in Iselin, N.J., was incorporated in 1978. For years, Sheldon Maschler was head trader and dominated the firm, an over-the-counter stock trading house. The company became Datek Online Holdings in 1998 and focused on the individual investor. Since then, it has presented itself as a new company with new management and distanced itself from Maschler and the old stock trading house. With 250,000 customer accounts, Datek Online is the nation's fourth-largest Internet brokerage firm; it is now run by Jeffrey Citron, 28. Datek also owns most of Island ECN, an electronic stock trading network that accounts for about 15 percent of trading in NASDAQ stocks. Island has petitioned the Securities and Exchange Commission to become an independent stock exchange. As reported Thursday, Vulcan Ventures, the venture capital fund financed by Paul Allen, a co-founder of Microsoft Corp., withdrew its plans to invest as much as $75 million in Datek Online Holdings and $25 million in Island ECN, though two other venture capital firms proceeded this week with a $195 million infusion into Datek. While it is unclear what investigators are looking for in Datek accounts, the subpoenaed documents could be full of surprises. The history of one customer account at Datek provides a glimpse of how the small order trading system was used to generate profits at the firm. The account, active from 1994 to 1997, belonged to a relative of a person who has been close to Datek. This person, who declined to be identified for fear of reprisals, supplied the account information to The New York Times and explained how it and similar accounts came to the firm. The account began with less than $100,000. But in one year at Datek, it generated an astonishing $1.1 billion in total transactions, both purchases and sales of stocks. In one day, 17 trades, some with profits of less than $50, were recorded. The heavy activity led the investor to the close the account. According to the person who supplied the account documents, as early as 1994 Maschler began holding meetings for Datek traders. At these meetings, Maschler tried to persuade those present to bring accounts to Datek with the promise that each investor would be guaranteed annual profits of at least 15 percent. If the trading in the account generated more in profits than the guaranteed return, Datek would pocket the rest. Those who brought in such accounts were offered a finder's fee of 5 percent of the account's assets, explained the person with the documents. The accounts were discretionary, meaning that their owners did not have to be consulted before each trade was executed. The person who supplied the documents confirmed that the investor earned 15 percent a year. While declining to comment on the specifics of the case, a spokesman for the SEC said that it was a violation of securities laws to guarantee a return on an investment and that it was unlawful for a firm or broker to share in the profits an account generates. There was no answer at Maschler's home in Boca Raton, Fla. Datek officials said Maschler was no longer with the firm and they could not supply the name of his lawyer. When asked about the unusual account activity and guaranteed returns, Bethge said it predated current management and he could not verify or dispute the allegations. According to the supplier of the documents, Maschler told the traders that he planned to use the individuals' funds to buy and sell NASDAQ stocks on the small order execution system. At the time, market makers posting prices in NASDAQ stocks were obligated to execute customer orders that came through on the system in amounts up to 500 shares. Maschler had become known for using the system aggressively to nail market makers who were slow to update their price quotations on a stock and were momentarily offering to buy stocks at prices above the current market or sell at prices that were too low. Catching market makers napping in this way is what the firm became known for. But the rules governing the small order system stipulated that the system could only be used for individual investors. Brokerage firms and their principals were prohibited from using the system for their benefit. Maschler and Datek have had many run-ins with regulators over the years. In May, the SEC fined Datek $50,000 for filing false financial reports and illegally using customer money to pay the firm's expenses in 1998. In December 1996, the National Association of Securities Dealers censured and fined Maschler $675,000 and suspended him from association with any NASD member for one year. The association charged that between 1991 and 1993 Maschler and other Datek employees violated rules by splitting up orders that were too large for use on the small order system into orders that could meet the requirements.>>