NASD Targets Markups In Record-Keeping Sweep
The National Association of Securities Dealers plans to target record keeping of fixed income transactions as it continues its probe into excessive markups.
The National Association of Securities Dealers plans to target record keeping of fixed income transactions as it continues its probe into excessive markups. On the heels of a $25 million settlement with Citigroup, Goldman Sachs, Deutsche Bank and Miller Tabak Roberts Securities this summer, the NASD is now preparing more cases because dealers have done a poor job of record keeping and are "not up to snuff," said an NASD official.
The NASD official said it wants to probe abuses such as markups of as high as 30%. No NASD rules specifically govern what is an acceptable markup on a bond trade. However, markups are governed by the NASD's Rules of Fair Practice, which require dealers to buy and sell securities at a fair price and say markups should be 5% or less.
Martin Kaplan, partner at Gusrae, Kaplan & Bruno in New York, said fixed income securities should not be subject to the same trading guidelines as stocks. He said the NASD's methodology is wrong in how it determines if a firm has overcharged an investor because it applies equity standards to more complex debt securities.
Instead, Kaplan said the NASD should be taking other factors into account such as liquidity and interest rates before deeming certain markups inadequate. "It's a perfect illustration of the NASD not doing anything but rule making and trying to make rules by disciplinary actions," he said.