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Not sure where this article is from but I thought I would forward it.
A friend sent it my way....
Nasdaq market makers come under fire - Questionable practices
Ian Karleff National Post
Monday's Internet stock carnage was a direct result of the Nasdaq
Stock Market's illiquidity, investor greed, and some questionable
trading practices by those who make the market, traders say. Investors
complained bitterly that many Nasdaq orders to buy stock were being
executed by market makers -- specialists responsible for matching buy
and sell orders -- before the session opened on Monday at prices
considerably higher than the previous session's close, while many sell
orders, at or slightly below the asking price, were not immediately
filled, contrary to the norm. Navarre Corp. (NAVR/NASDAQ), for
example, closed on Friday at $12 (all figures in U.S dollars) and
reopened Monday at about $27. Doran Ghatan, who manages about
$40-million for offshore investment firm Unicorn Funds in Nassau,
Bahamas, claimed that investors who wanted to buy the stock at the
open paid up to twice Friday's closing price, but those who wanted to
sell at, or
just below the opening price level, did not have their orders filled
within a reasonable time frame. Investors expressed their
dissatisfaction over delayed sell executions on America Online's Shark
Attack chat forum. And in Canada, Jeff Mulligan, a trader at Priority
Brokerage Inc., said he "had two or three sells where confirmations
came back way too late." Bobby Weiss, an independent New York trader
who manages more than $50-million for high-income investors, said the
problem stemmed from a handful of Internet firms being traded directly
between brokerages and market makers -- outside the Nasdaq's automated
trading system. "Basically, [market makers] work in collusion," Mr.
Weiss said. "They know they have buy orders, open a stock as high as
they can and then just let the price drop," before filling sell
orders, he said. Mr. Weiss said the market makers fill the buy orders
at the highest possible price, often with stock they borrow, knowing
they can buy it back later at lower prices. Scott Peterson, a Nasdaq
spokesman, confirmed there had been problems with the exchange's
trading system Monday, but said there were "no trades pulled from
automatic trading." He said about 12 Nasdaq firms were affected. "We
have a team working on it now and are hoping to have a solution
shortly," said Mr. Peterson. Mr. Weiss said many investors who placed
orders online to buy stock "at market" found that because buy orders
were being executed at prices up to twice Friday's close, it often
triggered higher margin calls from their brokers. Brokerage houses are
becoming more reluctant to fund Internet stock punts. Over the past
two weeks, a number have raised margin requirements -- the amount of
cash an investor must have on deposit in order to buy or sell stocks
using borrowed money -- on the most volatile of Internet issues.
Ameritrade Holding has increased its maintenance margin percentage of
a stock's value to 50%, from 30%, for about 25 Internet stocks.
Toronto-Dominion Bank's discount brokerage Waterhouse Securities Inc.
also has raised margin requirements on 12 volatile Internet stocks,
including Earthweb Inc., K-Tel International Inc. and theglobe.com,
while Bank of Montreal's Investorline said that Internet stocks not
included in the S&P 500 were subject to a 50% cash requirement, rather
than the usual 30%. Etrade Inc. and SureTrade Inc. also have lowered
the amount they will lend for certain Internet investments. Financial
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