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Nasdaq fines, censures Datek

Datek Online Brokerage Services will pay $30,000 in fines to settle charges that it allegedly incorrectly identified its role in 1 million customer transactions.

Datek Online Brokerage Services will pay $30,000 in fines to settle charges that it allegedly incorrectly identified its role in 1 million customer transactions, the company confirmed Thursday.

Nasdaq's regulatory body, NASD Regulation, also censured the Edison, N.J.-based brokerage for "related supervisory failures," NASD Regulation said in a statement. Datek spokesman Mike Dunn said the company "settled without admitting or denying the alleged violations."

"We took a corrective action to address concerns raised by Nasdaq, including adopting procedures to avoid a similar situation in the future." Dunn said. "The firm takes its regulatory duty seriously."

Brokerages are required to disclose in what capacity they are acting when they process a trade: either "principal" or "agent." When a brokerage identifies a "principal" trade, it means the company executes a customer's order by buying or selling shares from its own accounts. An "agent" trade means that a company forwards a customer order to another firm or matches the order with another customer, NASD Regulation said.

NASD Regulation accused Datek of changing its execution process for certain trades in March 1999 but not changing its computer system to correctly identify certain trades as "principal." Investors can make decisions based on whether a brokerage is selling from its own stock holdings or from some other company's, said Gomez Senior Analyst Dan Burke.

Datek also failed to fix the problem for four months after discovering the error in 1999, NASD Regulation alleged. Dunn blamed the problem on a computer-coding error and said that the company's customers and the stock were not affected.

"It took us longer than we intended to fix the problem," Dunn said.

Controversy is not new to 4-year-old Datek. In 1999, the company paid $50,000 in fines for using customer money to meet its own financial obligations on 12 occasions from March through May of 1998.

The latest charges are nowhere near as severe, but they raise questions as to whether the company is implementing proper control, Burke said.

"It's not a major issue, but it's another instance where they get slapped on the wrist," Burke said. "The issue really is that they were alerted to the problem and didn't address it. Everyone makes mistakes but you must remedy the situation."