Monday, February 20, 2006

NASD Pegs Tradestation

One of our buy recommendations -- Tradestation (TRAD) -- came under fire Monday after the NASD investigated the online brokerage for a controversial Wall Street trading practice called naked shorting.

"...Regulators at the NASD have notified the firm that some of its customers may have engaged in improper short sales. The Florida-based brokerage said in a filing that regulators could fine the firm for nearly 200 infractions that took place in 2004.

In a naked short sale, a trader places short bets without actually borrowing the stock first or even determining that any shares are available to borrow. This way, naked short-sellers are freed from a key check of the short-sale process -- the need to find willing stock lenders. Critics claim such operations create excessive downward pressure on certain stocks and can create chaos as buyers await undeliverable shares.

...naked shorting can lead to an anomalous situation in which the total number of shares sold short on a stock exceeds its float, or the number of shares available for trading..." (

TradeStation says regulators have found 172 improper short trades made during a two-month period in 2004.

We'll see how the stock digests the news at tomorrow's open.

Shares of Tradestation are up 30% since we brought your attention to the stock last November.

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