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June 30, 2000

Major Firm Violates Order Display Rule

By Staff Reports

J P. Morgan & Co. is the latest among dozens of Nasdaq trading firms punished by NASD Regulation for what it says was a violation of the limit order display rule.

The firm's securities unit was fined $200,000 for not complying with the rule over a 21-month period. NASD Regulation said the firm failed to establish, maintain, and enforce written supervisory procedures.

J.P. Morgan agreed to the fine and censure without admitting or denying the charges. A spokesperson said the firm recognized a problem and cooperated with the NASD.

In a statement, NASD Regulation, the enforcement arm of the National Association of Securities Dealers, called J.P. Morgan's supervision of limit order display an institutional failure.

J. P Morgan upgraded its OTC limit order handling system in 1998. But the NASD said the firm did not detect that the system had been "disabled" by a trader. The system remained disabled until February 1999 when the NASD informed J.P. Morgan it was conducting an investigation.

While most firms seem to be complying with the rules, J.P. Morgan nonetheless is one of 50 limit order display cases brought by the NASD. Violation cases were brought against Morgan Stanley Dean Witter, NationsBanc Montgomery Securities, Warburg Dillon Read and others, including some medium-sized and smaller broker dealers.

NASD Regulation, meanwhile, is stepping up its surveillance, introducing its Advanced Detection System. The electronic tool will allow the NASD to capture and review customer limit orders in each stock listed on Nasdaq that is received by a market maker or electronic communications network via OATS, the Order Audit Trail System.