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Strategies & Market Trends : Anthony @ Equity Investigations, Dear Anthony, -- Ignore unavailable to you. Want to Upgrade?

To: Ben Wa who wrote (72750)	7/18/2001 11:55:59 AM
From: Frederick Langford	Respond to of 122089

NASD Cracks Down on Market Makers by Adam Peeler July 16, 2001 The National Association of Securities Dealers fined 10 firms and suspended five of them Monday for violating securities laws that caused the markets to `lock and cross’ after the initial public offerings of certain companies last spring. The problem with locked and crossed markets according to the NASD is that they "adversely effect an orderly market opening and efficient price discovery because many firms do not execute customer orders during locked and crossed markets or execute such orders at unfavorable prices." Markets become locked and crossed when a market maker enters or maintains an 'ask' price for a security that is the same or lower than the 'bid' price of another market maker. “It prevents customers from buying or selling the stock for a period of up to a couple minutes while the market is locked and crossed,” said Richard Wallace, chief counsel for NASD market regulations. “If you’re selling stock you’re anxious to make sure you get the current price. No one wants to see the stock not trading for a few minutes." Nasdaq, which is a wholly owned subsidiary of the NASD, requires that market makers take reasonable steps to avoid locking or crossing the market. Wallace told ##############.com that about 50-60 stocks in their post-IPO phase may have been affected by the locking and crossing. “There were somewhere between 50 and 60 different issues that were the subject of these locked and crossed markets [from March through June in 1999],” he said. “A whole range of IPOs.” Asked if particular names came to mind, he replied, “Barnes and Noble.com (NASDAQ: BNBN) was one prominent example. But there were a lot of particular issuers. I don’t know if we’d say any one was more important than the other.” NASD fined Fleet Securities Inc, NDB Capital Markets LP, Herzog, Heine, Geduld Inc, Schwab Capital Markets and Spear, Leeds & Kellogg at least five figures each. NDB Capital Markets took the biggest hit with a $250,000 fine. The NASD fined and suspended Access Securities Inc., Aegis Capital Corp., Dalton Kent Securities Group, Ramius Securities and Torrey Pines Securities Inc. Dalton Kent Securities received the most severe sanction involving a $25,000 fine and a 30-business-day suspension. The firms were suspended from market making activities in the trading of a stock that has just completed an initial public offering. The market makers involved neither admitted nor denied the allegations, but agreed to the fines and suspensions. Warren said Spear, Leeds & Kellogg, NDB Capital Markets and Herzog, Heine, Geduld, which is owned by Merrill Lynch, are repeat offenders for creating locked and crossed markets. Calls to NDB and Spear, Leeds & Kellogg were not returned by publication time. Merrill Lynch spokesperson Bill Halldin said the investment bank took over Herzog, Heine, Geduld after the violations occurred. “So we don’t have any real comment,” he said. The disciplinary actions announced Monday resulted from market maker activities from March 1, 1999 through June 15, 1999. Jefferies & Co. analyst Charlotte Chamberlain covers Knight Trading Group (NASDAQ: NITE), North America’s largest market maker. She said it’s noteworthy that Knight wasn’t fingered. “It’s interesting when the number two and three market makers (Schwab and Herzog) are being identified and Knight is not,” she said. “But that’s consistent with what they tell investors in that they are extremely diligent with self policing.” Asked if she would interpret the NASD’s sanctions as merely a slap on the wrist, she said, “Not at all. These are important issues. Any regulatory infraction is not a slap on the wrist … it’s something these companies have to take seriously.” Only five more companies are expected to go forward with IPOs by the end of July. Sixteen firms have priced since the end of May. The NASD’s Warren said one of the reasons the NASD is coming down on offending market makers is the IPO market could mount a comeback in the future. “We haven’t had a lot of IPOs lately to say the least. This one area has not been pressing in the last few months but we want to make sure that going forward when IPOs do pick up again that people will know that these rules are out there and they have to comply with them.” In the past year and a half, NASD has brought approximately 35 cases for locked and crossed markets violations. ragingbull.lycos.com