Small stock focus: SEC's NASD case gives fresh spark to calls for stronger market overhaul
The heat applied last week by the Securities and Exchange Commission to the Nasdaq Stock Market is reigniting some criticism that the market needs a much stronger overhaul than what the SEC wants.</br></br>The SEC last week brought a disciplinary case against the National Association of Securities Dealers, the parent and self-regulator of the Nasdaq Stock Market, for failing to clamp down on dealers who engaged in anticompetitive, anti-investor behavior.</br></br>The SEC said NASD failed to stop some dealers from keeping artificially wide the spread between the prices at which they offer to buy and sell stocks; failed to keep dealers from reporting trades late -- a practice that obscures the true market for certain stocks; failed to discipline dealers who refused to honor their quoted prices to investors; and failed to halt market makers who coordinated with other dealers to set prices for their own advantage instead of for that of customers.</br></br>"Nasdaq market makers have engaged in a variety of abusive practices to suppress competition and mislead customers," the SEC wrote in its extensive report, which capped two years of investigation into practices on the market.</br></br>The NASD settled the case without admitting or denying wrongdoing and agreed to some 14 reforms, including ponying up $100 million over five years to increase its surveillance of dealers and strengthen its rules.