Friday, April 25, 2003

Guest Comment on "Front Running."

Jim Cramer of posted this comment recently on the "front-running" scandal. It's worth reading.

Random musings: "If I see corruption, I take no prisoners. I have filed more complaints, gotten on the phone to more governors, asked for more government intervention than just about anybody in this country. So if I say that I think this New York Stock Exchange investigation is overblown, you should think twice before you think it isn't. This investigation seems more like a case of negligence by some Floor brokers who shouldn't overlook trades from "the box" -- the outsiders trying to get in -- than fraud. Before decimalization, we had much more front-running than we do now. When specialists could take an eighth, sometimes they couldn't resist. When they can take only a penny, big deal. They shouldn't do it, but if they really were ripping people off, you would see it in their earnings -- which, by the way, stink."

"The real issue here, as far as I am concerned, is a competitive one. We have lots of people trying to get into trading. It is important for many of them to tarnish the NYSE in any way they can. Is the NYSE innocent of any wrongdoing? Of course not. Did some specialists front-run? Sure. Can some people not resist taking advantage of others? Yes. But I refuse to buy into the notion that the whole darned place is corrupt. And this is coming from someone who has spent 14 years fighting front-running, writing people up and demanding investigations when I thought they should occur. Fourteen years ago I wrote a piece for The New Republic talking about how corrupt the specialist system was during the crash of 1987. It hurt my business mightily. I didn't care. I knew the critical piece was right. I think I played a role in trying to clean it up with my writings. If I thought it was corrupt now, I would be coming at the issue with guns blazing. I don't owe anyone down there and don't care one whit what they think of me. But darn it all, the Exchange is getting a bad rap on this one. There are some bad apples. They will be picked. But beyond that, things are working better, and more fair, down there than at any other time I can recall. I gotta call it as I see it."