Taped Conversations Indicate Abuses, SEC Says
A Securities and Exchange Commission report issued Thursday on alleged Nasdaq trading abuses makes public portions of tape-recorded conversations that the SEC says are smoking guns in the federal investigations of the Nasdaq market.
Many firms routinely taped traders’ conversations to check in the event of disputes. The tapes, which were subpoenaed by the SEC and the Justice Department, appear to contain evidence of traders conspiring to keep profit margins wide, as well as to manipulate basic stock prices and to violate the rule requiring that trades be reported publicly within 90 seconds of execution.
Spokespersons for the firms have strongly denied that the thousands of hours of taped conversations contain evidence of widespread violations.
The SEC declined to identify any of the traders quoted in the report or their firms.
In one conversation, traders engaged in a transaction agree to report a trade late, after the bell signaling the close of trading, apparently to deceive a customer about how the stock it was buying from one of them was acquired.
Trader 1: “I bought 10 at 1/8, and don’t print it [report it] for, for a few minutes, ‘cause I told the guy I’m just making a sale out of the blue.”
Trader 2: “I’ll, I’ll print after the bell.”
Trader 1: “Thanks, bud.”
In another conversation, traders at two firms appear to conspire to manipulate the basic price of Parametric Technology Corp.’s stock. One dealer asks another dealer to raise the quoted price at which he offers to buy stock to create the false impression that there is strong buying interest for the stock.
The first dealer thus may have been able to charge a customer a higher price for the stock. In compensation, the trader agrees to sell a small amount of stock at the higher price to the trader who agreed to change his quote.
Trader 1: “What can I do for you?”
Trader 2: “Can you go 1/4 bid for me?”
Trader 1: “Yeah, sure.” . . .
. . . Trader 2: “I sold you two [200 shares] at 1/4. Just go up there, OK?”
Trader 1: “I’m goosing it, cuz.”
Trader 2: “Thank you.”
In one conversation, dealers at two firms talk about trying to increase the spread--essentially dealers’ profit margin--on McCaw Cellular stock to 3/4 of a point, or 75 cents. A dealer says that he already told one market maker to widen the spread by “going down an eighth,” or reducing the price at which dealers offered to buy a stock by 1/8, or 12.5 cents.
Trader 1: “So I told [trader at another firm] to go down an eighth.”
Trader 2: “If that’s what you guys want me to do, I’ll do it.”
Trader 1: “Try it and then I’m going to try and go down another eighth, you know what I mean, and get it, get it back to the 3/4 spread.”
