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Pastimes : CNBC-Squawk Box Trading -- Ignore unavailable to you. Want to Upgrade?

To: Sam Nizam who wrote (2776)	3/3/2005 3:33:25 PM
From: RockyBalboa	Respond to of 2782

SEC Probes 'Squawk Box' Front-Running TheStreet.com Thursday March 3, 2:34 pm ET By Matthew Goldstein, Senior Writer Securities regulators are investigating whether Wall Street brokers are giving big clients inappropriate access to internal strategy calls, permitting them to gather confidential trading information that is easy to profit from, people familiar with the inquiry say. The Securities and Exchange Commission probe, which began at least six months ago, centers on an allegation that brokers are deliberately providing a select group of investors with inside information. Specifically, the agency is trying to find out if clients have been tipped off about block trades. The investigation remains broad-based with no single firm emerging to date as the prime target, the sources said. Getting a tip about a planned block trade can be a major advantage to traders trying to cash in on sudden price movement in a stock. That's especially the case when it involves a small-cap stock with a relatively small number of shares outstanding. A block trade generally is a trade involving 10,000 or more shares. Sources say the SEC believes brokers are passing on this potential market-moving information to customers by permitting them to listen in on internal "squawk box" conversations. A squawk box is the Wall Street name for the internal morning call at brokerage houses, during which stock analysts and traders communicate with a firm's brokers about changing opinions on stocks and other market developments. The communications generally come through a desktop speaker system. Sources say the SEC's regional office in New York already has issued a number of subpoenas in the case and has questioned several brokers and traders. Sources also say federal prosecutors in Brooklyn are looking into the matter. SEC spokesman John Nester declined to comment. Robert Nardoza, a spokesman for Roslynn Mauskopf, the U.S. attorney for the Eastern District of New York, also declined to comment. People familiar with the investigation have variously described the potential violation as insider trading or front-running. An unsavory practice, front-running occurs when a trader has advance knowledge that an investor intends to move a big block of shares and seeks to capitalize on that information advantage by buying or selling ahead of the transaction. Ron Geffner, a former SEC enforcement attorney who is now a partner at the law firm of Sadis & Goldberg, said front-running is prohibited when the person making the trade is legally bound to the customer's interest. "Front-running tends to involve trading activity where a person in violation of a fiduciary duty will trade in front of another trade," Geffner said, adding that it wasn't clear to him if a third party listening in on a sales call had such a duty. It's not clear which Wall Street firms and institutional investors are the subject of the inquiry. Representatives for several Wall Street firms said they were not aware of any investigation. But several securities lawyers and brokers say allegations of abuse surrounding squawk box calls have been around for years. One attorney, who did not want to be identified, said a brokerage firm was privately reprimanded several years ago by regulators for allowing the inadvertent leak of inside information over a squawk box conversation. In the past, institutional investors were interested in getting access to squawk box calls to get advance word on a potential ratings change on a stock by an analyst. But such communications became less valuable in the wake of the $1.3 billion tainted-research settlement because most brokerages now publish their research reports several hours before an analyst discusses them on the morning call. A manager with a Midwestern hedge fund, who declined to be identified and was not aware of the investigation, said it's not uncommon for block trades to be discussed on squawk box calls. The manager said he is aware of situations in which brokers simply left telephones off the hook during the calls, allowing clients to hear what was said. "You can hear them saying we need to buy or sell a block of this," the hedge fund manager said. "You do definitely pick up info on block trades." But the manager is skeptical about how much wrongdoing regulators will find. "You can't build a strategy around that," he said.