NASD Wades Into Scandal with Censures, Fines

June 24, 2004 ( - The NASD has censured and fined five brokerage firms a total of $625,000 for not preventing late trading with adequate supervisory systems and written procedures.

Each of the firms sanctioned permitted its registered representatives to process fund orders after the close of the market, but none of the firms had adequate systems in place to ensure that only orders received prior to that day’s market’s close received that day’s NAV.   One firm, D.A. Davidson & Co., was also cited for failing to comply with a new recordkeeping rule that went into effect in May 2003 requiring firms to record the time of receipt of orders to buy or sell mutual fund shares.

The firms and their respective fines are:

  • D.A. Davidson & Co. ($150,000)
  • TD Waterhouse Investor Services, Inc. ($150,000)
  • Stifel Nicolaus & Company ($125,000)
  • National Planning Corp. ($100,000)
  • SII Investments, Inc. ($100,000)  

“To help ensure that illegal late trading does not occur firms must implement systems to guarantee that all mutual fund orders processed after the close of the market were received during normal trading hours,” said NASD Vice Chairman Mary Schapiro.   “NASD will be vigilant about sanctioning firms for failing to have adequate supervisory systems in place designed to prevent manipulative late trading, regardless of whether such trading in fact occurs.”

Late trading has been one of two area of focus for state and federal regulators who have been pursuing a wide-ranging probe of the mutual fund industry. Investigators have also been looking at market timing activities.