WSJ: Price Markups Get NASD Scrutiny

By AARON LUCCHETTI
Staff Reporter of THE WALL STREET JOURNAL
June 18, 2004

WASHINGTON -- Regulators have opened 20 separate investigations into whether brokerage firms charged excessive markups on investors' bond transactions, an NASD official said, providing new information about the scope of the probe.

The NASD, a self-regulatory body for brokerage firms, has been looking into markups in the $23 trillion bond market for months, but hadn't released details of the inquiries until yesterday's testimony by Doug Shulman, the NASD's president of markets, services and information, at a Senate hearing.

He told the Senate Banking Committee that the NASD expects to bring some "significant" cases soon. He declined to elaborate, except to say the cases focused on trades in the $4.6 trillion corporate-bond market and the $1.9 trillion municipal-bond market. In February, The Wall Street Journal reported that the NASD was looking into a handful of corporate-bond trades made in 2000 and 2001 by Goldman Sachs Group Inc.

The investigations by the NASD, formerly known as the National Association of Securities Dealers, are gaining steam as legislators turn their attention to questions about the bond market, which has grown amid rising investor appetite for stable investments and increased borrowing by governments, consumers and corporations.

Bond-market regulators are more aggressively using comprehensive trade-reporting data they recently started collecting and are rolling out so investors can check the prices of many bonds shortly after they trade. Using these data, regulators can more efficiently comb markets for instances of high markups, which essentially act as a hidden fee paid by the investor.