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> Date: Thu, 22 Oct 1998 00:53:40 -0400
> From: "Gaius Marius" <magnus@xxxxxxxxxxx>
> :Massachusetts regulators further allege that the company allowed
> Mr. :Baruchowitz to allocate trades to either his account or the
> other customer's at the end of each day. His personal account was
> the only profitable one, according to the complaint.
>
> :Mr. Baruchowitz declined to comment. Christopher M. Block, Block Trading's
> :chief executive, said the firm didn't violate any laws. He said the firm's
> :computer system doesn't allow post-hoc allocations to separate accounts...
>
>
> Wanna bet? Hell, I've done this myself. ;-) You have 15 mintues to do this
> (from 4:00pm until 4:15 pm EST) before the "books" are closed. Note: I've
> never worked at Block but at 2 SOES places where this is a common practice.
> Let's say we have 2 guys trading one stock. One guy is short the stock at 87
> and the other guy is long at 86 with the stock closing at 85. So the short
> will take the trade off the guy at 86, covering his short, keeping his
> profit in the expectation that the long will return the favor sometime in
> the future. Usually this shit happens at least once a week. And the prices
> are usually closer with the profit of around a 1/8 to 1/2 a point. At NYSE
> member firms, this is not allowed at all but at smaller NASD firms this can
> happen.
>
I know for a fact that two of the things Block did happened at my
SOES firm. Trades were allocated across accounts for a number of
reasons, such as not exceeding margin, covering losers as noted
above, and any other number of reasons. The second thing was that the
employees (at least two who were in management) pointed out how
freely available loans were from an "angel". They highly encouraged
lots of tickets and overtrading by saying, "margin and money should
never be the deciding factor in putting on 1000-share (or more)
trades. We will cover you for X dollars per thousand."
At the time I was trading 500-share lots because otherwise I would
get into margin situations almost every day. Even with a pretty
good-sized account, you load up DELL (pre-split), YHOO, MSFT, and
INTC at the same time, and you have a big open position even with
only 500 shares of each. One guy in particular, put the full-court
press on me to jump up to 1000-share lots, and don't worry about
margin. And I had only been SOES trading for a couple of months. By
the time I realized what my margin loans were really costing me, it
was a bunch, and I quit SOES trading.
At the time, I didn't consider either of these tactics to be shady,
let alone illegal, because they were so openly done and widely
accepted. Now, well I'm just not so sure. I'm just gald I was a
trader and not an employee, because this could blow up in their
faces.
*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*-*
"It's hard to make predictions, especially about the future."-Yogi Berra, Visionary, 19??
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Shawn Devlin
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http://www.netcom.com/~shawnd/shawn.html
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