Richard Repetto
Traders Magazine Online News

Why Do Exchanges Own Multiple Licenses? It's Not Hard To See, Look at the SEC

In this recent research note, Sandler O'Neill + Partners, L.P. Principal Richard Repetto examines why the public exchange operators hold multiple licenses and that rationale behind this phenomenon.

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February 1, 2003

Robertson Stephens Runs Afoul of the Regulators

By Gregory Bresiger

Robertson Stephens, regulators say, illegally obtained hot IPOs for some 100 accounts and has been fined $28 million. It has been censured and will pay $14 million each to the Securities and Exchange Commission and the National Association of Securities Dealers.

These agencies charged that the firm inflated commissions by engaging in what the regulators charged were "non-economic trades" at the height of the IPO boom in 1999 and 2000.

Market Exposure

"In these trades," according to the NASD, "the customer purchased a highly liquid exchange-listed security through the firm, paying an inflated commission, and resulting in an immediate loss for the customer. Many of these trades were executed as market on open or market on close in order to minimize market exposure."

The complaint, which Robertson Stephens neither admitted nor denied, alleges that certain managers were told the firms would share in the profits of the offerings.

A senior salesman, according to regulators, wrote to the head of institutional sales about an account that requested a desired IPO offering.

"Because of their uncertainty about the level of upside to the deal, rather than commit to a fixed level of incremental commission (i.e. $10,000 per 1,000 shares), [the customer has] commissioned to do incremental business equal to 30 percent of their profit...This is a layup," regulators charged that the Robertson Stephens official wrote.

Closing Shop

The regulators also charged that Robertson Stephens engaged in an illegal profit sharing scheme with financial services clients by inflating markdowns on the sale of IPO shares to the firm. These accounts, the NASD said, "flipped" their shares back to the firm, and paid the high markdowns even though Robertson Stephens often did not charge any markdown on principal trades.

Robertson Stephens, pummeled by the bear market in trading, has shuttered operations. It is now in the final stages of withdrawing from the securities industry.