NASD Fines Lehman Bros. $15,000 Over Rule Violations : Nasdaq: Firm was accused of failing to honor its stock quotes. It neither admits nor denies wrongdoing.


The National Assn. of Securities Dealers, continuing a new drive to enforce basic trading rules, said Wednesday that it fined Lehman Bros. Inc. $15,000 for repeatedly failing to honor the prices it quoted for Nasdaq stocks.

The action is only the second case, at least in recent years, of the NASD’s taking public disciplinary action for this type of infraction. The first was in September, when it fined Morgan Stanley & Co. $19,000 for a similar alleged string of violations. Like Morgan Stanley, Lehman agreed to the fine without admitting or denying wrongdoing.

Failing to honor publicly quoted prices, known among Nasdaq traders as “backing away,” is akin to a supermarket advertising soap at one price but refusing to sell it at that price. A Times series last year reported that backing away was rampant among Nasdaq dealers but that the NASD, Nasdaq’s parent organization, took no publicly disclosed action despite thousands of complaints.

Since then, the NASD’s alleged failure to enforce rules against backing away has become one major focus of a Securities and Exchange Commission investigation of the NASD. NASD spokesman Marc Beauchamp said, “We take the rules against backing away very seriously.”


The NASD accusation detailed six instances from March 30, 1994, through May 18, 1994, of Lehman failing to honor its quoted prices for stocks such as 3COM Corp. and Rally’s Hamburgers. The NASD disclosed that earlier it had twice issued non-public written “cautions” to Lehman for backing away infractions. A Lehman spokesman said the firm had no comment on the case.

The cases represent something of a vindication for a group of small, maverick Nasdaq dealers, known as SOES bandits. These firms’ heavy, but legal, use of Nasdaq’s Small Order Execution System irritated many big established dealers, which claimed the SOES firms were using the computer system, designed to expedite small customer orders, to unfairly eat into the bigger firms’ profits.

In interviews a year ago, NASD officials had dismissed the surge of backing away complaints as groundless, saying nearly all of them were filed by SOES firms they said were bent on making trouble for established Nasdaq dealers. But all of the infractions the NASD cited in both the Morgan Stanley and Lehman cases involved instances in which the NASD found SOES firms’ backing away complaints were valid.