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believe that detailed market-maker ratings could in fact be more misleading than helpful. |
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"Trading-Through" Violations |
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The NASD formerly had a reputation of seldom enforcing "trading-through" violations (a practice that some say continues even today). Trading through occurs when a transaction takes place at a price that is inferior to the best quoted market on Nasdaq. For example, if the inside market on Apple Computer is 18 ½ bid and 18 5/8 offer and a trade is reported at a price of 18 3/8, it is apparent that the seller of the stock was cheated out of an eighth of a point because the seller was entitled to at least 18 ½ (the quoted bid) on some quantity. The brokerage firm that executed the order in fact traded through the best bid (18 ½) and thereby denied the seller the superior price. This is a despicable practice that violates a firm's fiduciary obligation to its customer and NASD regulations. |
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Despite this fact, this practice occurs all too often. In order to ensure fairness, it is every trader's and investor's obligation to report these types of improprieties and protest them with vigor. Only then will firms respect the sanctity of the central market system, thereby assuring the fairness and integrity of the equities markets. Remember, ignoring these seemingly minor petty offenses only makes the violators bolder and almost legitimizes their actions. |
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For years the brokerage industry knew full well that most investors would not have the initiative, time, or money to object to "trading through" and other reprehensible behavior. Only an informed public can keep the brokerage community honest. |
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If you see stocks trading through your limit, call your broker and insist on a report of the particulars. If no remedial action is taken, file a complaint with the NASD. If you are still not satisfied, then contact the SEC, which is basically your last bastion of sanity before you go to court. |
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