Nasdaq traders remain upbeat SEC's unusual censure not expected to spark flight from the market

'Let's face it, money talks'

Brokers are bracing for crackdown likely to flow from decision

August 10, 1996|By Bill Atkinson | Bill Atkinson,SUN STAFF

Traders of over-the-counter stocks were optimistic yesterday that investors won't flee the Nasdaq stock market, which was sternly reprimanded by the Securities and Exchange Commission Thursday after a report that numerous brokers engaged in illegal activities.

The traders said stocks are so popular that negative publicity, even in the wake of the commission's crackdown on the nation's second largest stock market, will do little damage to its reputation.

"Let's face it, money talks and money has been flowing into the Nasdaq market," said John R. Boo, head of Nasdaq trading at Ferris, Baker Watts Inc.

"I don't think it is going to damage the reputation," added Andrew Brooks, who heads the trading desk for T. Rowe Price Associates Inc. "This has been a very successful engine and vehicle to raise capital in this country, and you have to be careful of changing it."

But the SEC's findings can't help but "cause some damage" to the reputations of Nasdaq and its parent company, the National Association of Securities Dealers, said William R. Rothe, managing director with Alex. Brown Inc. He is chairman of the Security Traders Association, which represents 7,000 securities traders in the U.S., Canada and Europe.

"Reputation is an important thing to have," Rothe said. "That is not to say that the former good reputation of the NASD can not be earned back."

Mark Sargent, professor of securities law at the University of Maryland School of Law, said NASD's problems shouldn't seriously undermine the market, but "people are going to be looking long and hard at them when a company has to decide between the New York Stock Exchange and the Nasdaq."

The SEC slapped NASD with a formal censure Thursday after an 18-month investigation into trading irregularities on the Nasdaq, which in 25 years has become the nation's second largest stock market.

SEC Chairman Arthur Levitt Jr. said the commission found that numerous Nasdaq market makers engaged in a variety of practices that reduced competition and misled customers. Some brokers failed to honor their price quotations; others shared information about their customers' orders, which resulted in the customer paying higher prices for stocks, and still others collaborated to keep spreads on stock prices wide so their profits would be greater, according to the commission report.

Brokers who didn't play along and work to increase spreads were routinely harassed, the commission said.

The SEC ordered the NASD to spend $100 million over five years to beef up its staff for surveillance and enforcement.

NASD officials consented to the SEC's order without admitting or denying the allegations.

Boo, the trader with Ferris, Baker Watts, said traders are bracing for changes after the SEC's crackdown.

Pub Date: 8/10/96

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