Newspaper article THE JOURNAL RECORD

Panel Told Securities Violations Hard to Catch

Newspaper article THE JOURNAL RECORD

Panel Told Securities Violations Hard to Catch

Article excerpt

WASHINGTON (AP) _ A New York Stock Exchange official told a Senate panel Thursday that uncovering wrongdoing by a large member firm like Salomon Brothers "would be extraordinarily lucky" in the lightly regulated government securities markets.

In testimony before a Senate subcommittee seeking prescriptions to head off future government securities scandals, the NYSE's Edward A. Kwalwasser said under current rules there were few records for officials to examine.

In the corporate securities markets, transactions are done electronically or recorded on computers after face-to-face trades. Such record keeping is known as an audit trail that lets regulators backtrack a transaction if a question or dispute arises.

"In the government market there isn't any audit trail so that on the surveillance side, there's nothing for us to look at," Kwalwasser told members of the Senate Banking Committee's finance subcommittee.

The panel has been looking into reforms of the government securities market after Salomon, one of 39 primary dealers in Treasury bonds, bills and notes, admitted several violations last month.

Noting that Salomon averaged 8,000 transactions a day in the secondary, or public, government securities markets, the Big Board official said: "for our examiners to pick up one transaction would be extraordinarily lucky. It wouldn't be because we had the tools to ferret that out."

In testimony before Senate and House panels recently, federal regulators have insisted that their discovery of Salomon's wrongdoing was not just an accident due to a bogus customer bid by Salomon.

Kwalwasser, head of the NYSE's Regulatory Group, was joined by Joseph Hardiman, president of the National Association of Securities Dealers, in calling for more automation in the government securities markets.

The association is a Washington-based, self-regulating organization empowered by Congress to oversee the over-the-counter market for securities which generally are not traded on stock exchanges.

The National Association of Securities Dealers has limited oversight over 18 of the primary dealers. The NYSE keeps an eye on 20 of its members that are primary dealers. The 39th primary dealer is a bank, regulated by banking authorities. …

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