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On July 21, 1999, CSFB, as the lead underwriter, conducted MP3.com's initial public offering (IPO) and MP3 began trading on The Nasdaq Stock Market. At the opening of trading on that day, CSFB had orders to buy more shares of MP3 than it had to sell. CSFB did not meet its obligation to make every reasonable effort to execute six of its customer sell orders fully and promptly.
NASD's Market Regulation Department found that CSFB initially sold short over 330,000 shares of MP3 to other customers at a price of $100.50 per share. While CSFB gave prompt partial executions to three of the six customer sell orders for approximately 15 percent of the combined volume of the six sell orders, the balance of the six orders received untimely executions. Instead of satisfying its best execution obligations as to the remaining portion of the six customer orders, CSFB executed them as the market declined. Due to the manner in which CSFB executed the six customer orders, CSFB profited, and its customers were disadvantaged by, $606,000. CSFB was censured and fined $150,000 for violating the duty of best execution and has made restitution to the customers.
Additionally, during this period, CSFB received 277 SelectNet orders to sell nearly 150,000 shares of MP3 from other market participants that were priced equal to or below CSFB's bid. Thirty of these orders were presented to CSFB at its published bid in an amount up to its published quotation size. Under NASD and federal securities laws, market makers are required to execute an order to buy or sell a security from another broker or dealer at a price at least as favorable as the market maker's published quotation for at least the number of shares offered in the quotation. CSFB failed to execute these 30 orders when presented and therefore failed to honor its published quotation (commonly known as "backing away") and was fined $20,000. CSFB neither admitted nor denied NASD's findings.
Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm by calling NASD's BrokerCheck. NASD makes available BrokerCheck at no charge to the public. In 2003, members of the public used this service to conduct more than 2.9 million searches for existing brokers or firms and requested almost 180,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to the program by going online to www.nasdbrokercheck.com. Investors can also continue to access this service by calling 1-800-289-9999.
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