Skillful manipulators of Nasdaq's Small Order Execution System apparently struck again this week, adding fuel to a run-up in the stock of Zions Bancorp and Onbancorp.
Stocks of the two midsize banks spiked on Wednesday, a day when the industry's shares were flat. Zions, Salt Lake City, rose by nearly 5% to $48.25, a 52-week high. And Onbancorp, Syracuse, N.Y., rose by slightly more than 5%, to $28.375.
Both banks apparently were the targets of so-called SOES bandits, companies that trade illiquid stocks with wide spreads between their bid, or dealers' purchase price, and asked, or dealers' sales prices, said Scott Edgar, an analyst with Sife Trust Fund, Walnut Creek, Calif.
SOES is a computerized trading network erected by Nasdaq after the October 1987 market crash. It was intended to help small investors quickly send orders to market makers.
But a handful of firms have emerged that exploit dealers unable to update their prices quickly when a stock begins to move. A SOES bandit, just as a price rises or falls, will enter trades with a dealer before that dealer has a chance to update the prices.
"So really, the dealer gets SOESed, not the bank," said Kenneth Puglisi, a bank analyst at Sandler O'Neill & Partners, which makes markets in over 350 bank stocks, many of which are highly illiquid.
"When you are trading 350 bank stocks like we do, it is hard to keep track of all the orders," he added. "The SOES bandits just come in behind your back." The Justice Department is currently investigating Nasdaq's trading practices, and as part of that SOES is also expected to come under review.
Observers did not know why Zions and Onbancorp were singled out. One trader noted that SOES bandits do not start a price run-up or plunge, but simply strengthen it by exploiting the difference between a changing market price and a given dealer's price.
Zion's chief financial officer, Gary Andersen, said he knows of no news that would cause his institution's stock to rise so sharply, but said he also had heard that SOES bandits were buying the bank's stock. Zions, which has $5.5 billion of assets, saw 108,000 shares traded Wednesday, more than four times its average daily volume.
Onbancorp saw more than 450,000 shares change hands, compared with an average daily volume of 89,000. For Onbancorp, with $6.4 billion of assets, Mr. Puglisi said the bank had lagged the overall market, so there was some catchup involved. Shares of both banks traded unremarkably Thursday, with light volume.
In other news, bank stocks were slightly up Thursday, modestly underperforming the overall market.
Brown Brothers Harriman & Co. analyst Nancy Bush cut her 1995 earnings- per-share estimate for First Fidelity Bancorp. 6% to $5.30, and her 1996 estimate 7% to $5.70. First Fidelity closed down tktk at tktk. Ms. Bush cited the bank's declining loan volume and relatively meager fee income.
C.J. Lawrence analyst Michael Plodwick downgraded First Bank System Inc. on price to "hold" from "buy," saying the company was within reach of his $46-a-share target. Shares closed down 12.5 at $14.375.
