The NASD is going after broker-dealers that allowed late trading in mutual funds. Thursday the self-regulatory organization fined five brokerage firms a total of $625,000, claiming that they failed to "implement adequate supervisory systems and written procedures reasonably designed to detect and prevent 'late trading' of mutual funds."
In settling with NASD, the firms neither admitted nor denied NASD's findings. The five funds hit with the fines were:
D.A. Davidson & Co. (fined $150,000)
TD Waterhouse Investor Services, Inc. (fined $150,000)
Stifel Nicolaus & Company (fined $125,000)
National Planning Corp. (fined $100,000)
SII Investments, Inc. (fined $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 L. 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."
The NASD defines late trading as any trade placed after the 4 PM market close, which is also priced at that day's NAV. By law fund trades placed after 4 PM must receive the next day's price.
NASD officials said that each of the firms sanctioned permitted its registered representatives to process mutual 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.
In addition, the NASD said that D.A. Davidson & Co., also failed to comply with a new record-keeping 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.
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