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When you get a parking ticket you pay the fine and no one gets hurt. But on Wall Street the rules are different. If you get caught you also pay a fine, but you also cause losses to others in the process.
Generally this is how it works. You, the customer, call in an order to your specialist. The phones are answered by "runners" who are just off the trading floor. They give it to the specialist who is the one who executes the order.The specialist holds all the orders for a particular security and knows how many orders there are and at what prices they must be executed.
But a "crooked" specialist is a thief. For example, he knows that a customer wants to buy a security at $10.00. Instead of immediately buying the security for the customer, he buys it for himself first. By doing this he usually can pick up an extra point or two for himself. It should be noted that most specialists can trade for their own account.
This is what the specialists for Goldman Sachs(NYSE: GS) Executing and Clearing and SLK-Hull Derivatives (also owned by Goldman) did. Other parties in the settlement included Automated Trading Desk Specialists now owned by Citigroup Inc. (NYSE: C), ETraded Capital Markets, and Susquehanna Investment Services. Altogether these firms paid $70 million to settle claims against them.
This is what the specialists for Goldman Sachs(NYSE: GS) Executing and Clearing and SLK-Hull Derivatives (also owned by Goldman) did. Other parties in the settlement included Automated Trading Desk Specialists now owned by Citigroup Inc. (NYSE: C), ETraded Capital Markets, and Susquehanna Investment Services. Altogether these firms paid $70 million to settle claims against them.
Let;s hope that this small ($70 million is chump change on Wall Street) payment slows down the practice of "trading ahead of your customers."
What are your feelings on this practice?
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Reader Comments (Page 1 of 1)
3-06-2009 @ 2:16PM
matt said...
What is it going to take before we actually start policing this horribly corrupt system effectively? This is just a tiny example of how people have been getting away with murder for years and years.
3-06-2009 @ 2:32PM
wdmurphy said...
It's gonna take everyone selling all there stocks and letting the system fail to get the change your asking for. Not a bad idea to punish the industry as they have been cheating the public for years. I guess deregulation doesn't work. But then thats no surprise to anyone. Our government has failed us and there is no end in sight.
3-06-2009 @ 4:18PM
Uri said...
Why isn't this practice a crime punishable with jail time?
3-06-2009 @ 8:06PM
Badabing said...
After reading this, and stories about crooks like Madoff, I will now make it a point to defraud every brokerage house, investment firm and bank I can think of. I mean, why not they have been getting away with it for years, its time to spread the wealth !