NASD, the regulator of Nasdaq, has filed a complaint against Toronto-based Swift Trade Securities USA Inc. and its president, Peter Beck. The regulator is accusing them of engaging in a fraudulent trading scheme involving fictitious “wash” transactions in the Nasdaq-100 Index Tracking Stock to obtain market data revenue generated from such transactions.

NASD alleges that from April 2002 through May 2002, Swift USA operated a computer software program to route simultaneously offsetting limit orders for QQQ to the Island ECN solely for the account of its Canadian-registered counterpart, Swift Trade Securities Inc. its only customer.

The NASD says that because these orders were executed at the same price and quantity on both sides of the market for Swift Canada’s proprietary account, “they were not intended and did not result in any change of Swift Canada’s ownership of QQQ shares,” says the NASD. “These fictitious and non-bona fide transactions that do not result in a change of ownership are illegal.”

The complaint alleges that Swift USA, through Beck, violated NASD rules by executing these “wash” transactions through Island to profit from the market data revenue sharing provided by Island to its subscribers, while not subjecting Swift Canada to the risk of profit or loss from the underlying trading. NASD says that during one month, Swift USA received over US$19,000 in ill-gotten market data revenue.

The complaint also charges that Swift USA and its vice president and compliance officer, Joseph Ianni, inadequately supervised the trading in Swift USA’s proprietary account.

Under NASD rules, the individuals and the firms named in the complaint can file a response and request a hearing before an NASD disciplinary panel. Possible sanctions include a fine, censure, suspension, bar, or expulsion from the NASD, in addition to the request made by NASD in the complaint that the respondents give up any illegal profits and pay restitution.