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8:30 AM Thursday, August 4, 2005: Not a brilliant idea to tour real estate in 103 degree heat. The brain fries. The good news: The U.S. office market is coming back to life. The national vacancy rate for all classes of space registered 15.6% at the end of June, down from 16.4% in the previous quarter and the steepest quarterly decline in five years. Office rents are inching up.

The bad news: Some cities are better than others. I was in White Plains and Westchester County yesterday. Lots of old Fortune 500 headquarters being recyled into general office space. Happening slowly.

Suffice, real estate is a local market. Local knowledge is key. Am cogitating.

Meantime, this summer's reporting season boomlet continues. Whole Foods is almost $140. And TriPath Imaging is up a buck this morning. Mother.

How Wall Street screws its clients: Today, Wall Street can't make money buying and selling shares for its clients. Brokerage rates are far too low. In any normal business, given the drastic drop in prices, half the companies would have closed up shop and gone into plastics or biotech. Not Wall Street. It simply trades ahead and around its clients, thus getting its pound of flesh anyway. It can do this because Wall Street, despite the proliferation of compliance officers, has basically no rules.

The BIG question: When you and I place an order to buy 100 shares (whether online or through a broker), where do our 100 shares come from? And what price? I defy anyone to give me a simple answer. Now read today's Wall Street Journal story. Notice how few specifics there are -- like firms, dollars, timing, frequency, etc. And ask yourself, how can the New York Stock Exchange "regulators" censure the people who pay the regulators' salaries. It defies logic.

The New York Stock Exchange's regulatory unit is considering enforcement actions against brokerage firms that may have harmed investors by trading on knowledge of their plans to buy and sell stock.

"We're in the process of evaluating" some trades that raise questions about whether Wall Street firms used their knowledge of certain types of orders to make money at the expense of their customers, said Robert Marchman, executive vice president of market surveillance at the NYSE. He declined to name the firms, but said that some trades were "under review" for referral to the exchange's enforcement division. The exchange has looked at trading practices at more than 10 large Wall Street firms.

Regulators' scrutiny comes as some Wall Street firms generate more profits from proprietary trading. The NYSE also took the unusual step of reminding brokerage firms in a letter Monday of their obligations to disclose their practices and protect customer interests when trading stocks that customers also want to buy or sell.
[Growing Focus]

The letter lays out the firms' duties when handling increasingly popular Volume Weighted Average Price, or VWAP trades, in which mutual funds and other investors place orders to buy or sell shares over a specified period for a price pegged to the average, as well as situations in which a brokerage firm submits a so-called blind bid in response to a customer's request, without knowing all the details of the trade.

The NYSE letter is intended to express the exchange's concerns before the issue becomes "a major problem for the investing public," Mr. Marchman said. The National Association of Securities Dealers and the Securities and Exchange Commission are also looking at these types of trades. Lawyers at Wall Street firms have been requesting guidance on when it is acceptable to trade, said Stephen Luparello, the NASD's executive vice president for market regulation.

The NYSE review began in March 2004 after the United Kingdom's Financial Services Authority fined Deutsche Bank AG's Morgan Grenfell securities unit for conducting trades that the FSA found had harmed a client by pushing the price of a stock up before the client could execute its order to buy. The client had requested a blind bid, and Morgan Grenfell was able to figure out some of the securities that were involved.

Deutsche Bank said in December that it "takes its obligations to its customers very seriously and therefore regrets the misunderstanding with an experienced institutional customer."

Some Wall Street firms point out that trading in front of client program orders can be a legitimate form of hedging. In one example, if a brokerage firm knows it is going to sell a large block of stock to a fund manager at the end of the trading day, it makes sense that the brokerage firm would buy shares for its own inventory to have enough shares to sell to the client.

The tricky part is that buying in anticipation of a customer trade can push the price up, something that the NYSE says should be disclosed to investors. Some firms such as UBS AG say they don't trade in front of blind bids, in which clients may tip their hand about their intentions. Others such as Goldman Sachs Group Inc. and Deutsche Bank have said that they may trade on such information, but the practice helps them offer customers better trading prices.

A Goldman spokesman said yesterday that the firm won't trade in such a way if a client instructs it not to. He added that the recommended approach in the NYSE letter "largely reflects our practices."

Some money-management firms such as Barclays Global Investors have warned brokers not to trade on information they provide about their plans. The NYSE's letter was "sorely needed," said Michael Sobel, head of U.S. stock trading at Barclays Global. It reminds a brokerage firm that it has "an obligation to put customer interests ahead of its own pecuniary considerations."

VWAP trades have grown in popularity because they allow fund managers to buy or sell at prices that look reasonable, at least on average. Investors who place such orders, however, run the risk that the Wall Street firms will have minutes or hours to trade in a way that pushes the average price around to their detriment.

Please confirm the attached document! I receive those words several times a day. I'm guessing you do, too. Please don't open the attachment. In fact, don't open attachments from people you don't know.

Genghis Kahn and the mosque: An amazing man and an amazing book. Genghis Kahn conquered more than twice as much total area as any other man in the history of the world. The Mongols make no technological breakthroughs, founded no new religions, wrote few books, gave the world no new crops. The only permanent structures Genghis Khan erected were bridges. He spanned hundreds of streams and rivers in order to make the movement of his armies and goods quicker. The Mongols deliberately opened the world to a new commerce not only in goods, but also in ideas and knowledge. In nearly every country touched by the Mongols, the initial destruction and shock of conquest by an unknown and barbaric tribe yielded quickly to an unprecedented rise in cultural communication, expanded trade and improved civilization. As he smashed the feudal system of aristocratic privilege and birth, he built a new system based on individual merit, loyalty and achievement. He took the disjointed and languorous trading towns along the Silk Route and organized them into history's largest free-trade zone. He lowered taxes for everyone, and abolished them altogether for doctors, teachers, priests and educational institutions. He established a regular census and created the first international postal system. At a time when most rulers considered themselves above the law, Genghis Khan insisted on laws holding rulers as equally accountable as the lowest herder. He granted religious freedom within his realms. He insisted on the rule of law and abolished torture.

The book is:



My favorite quote: "Upon reaching the center of Bukhara, Genghis Kahn rose up to a large mosque and asked if, since it was the largest building in the city, it was the home of the sultan. When informed that it was the house of God, not the sultan, he said nothing. For the Mongols, the one God was the Eternal Blue Sky that stretched from horizon to horizon in all four directions. God presided over the whole earth; he could not be cooped up in a house of stone like a prisoner or a caged animal nor, as the city people claimed could his words be captured and confined inside the covers of a book."

TriPath Imaging has a conference call today at 11 AM: But it's already reported great numbers, great guidance and the stock is called up a buck. Mazel Tov, Harry. The call will be available by dialing (888) 344-3716. International participants should call (706) 634-4926.

Off on a big Australian vacation:
Abe and Esther are flying to Australia for a two week vacation to celebrate their 40th anniversary.

Suddenly, over the public address system, the Captain announces, "Ladies and Gentlemen, I am afraid I have some very bad news. Our engines have ceased functioning and we will attempt an emergency landing. Luckily, I see an uncharted island below us and we should be able to land on the beach. However, the odds are that we will never be rescued and will have to live on the island for the rest of our lives!"

Thanks to the skill of the flight crew, the plane lands safely on the island. An hour later Abe turns to his wife and asks, "Esther, did we pay our charity pledge check to Beth Shalom Synagogue yet?"

"No, sweetheart," she responds.

Abe, still shaken from the crash landing, then asks, "Esther, did we pay our United Jewish Appeal pledge?"

"Oy, no! I'm sorry. I forgot to send the check," she says.

"One last thing, Esther. Did you remember to send a check for the Synagogue Building Fund this month," he asks?

"Oy, forgive me, Abie," begged Esther. "I didn't sent that one, either."

Abe grabs her and gives her the biggest kiss in 40 years.

Esther pulls away and asks him, " So, why did you kiss me?"

Abe answers, "They'll find us."

Recent column highlights:
+ Manhattan Pharmaceuticals: Click here.
+ NovaDel Biosciences appeals. Click here.
+ Hana Biosciences appeals. Click here.
+ All turned on by biotech. Click here.
+ Steve Jobs Commencement Address. The text is available: Click here. The full audio is available. Click here.
+ The March of the Penguins, an exquisite movie. Click here.
+ When to sell your stocks. Click here.

Harry Newton

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads. Thus I cannot endorse any, though some look mighty interesting. If you click on a link, Google may send me money. That money will help pay Claire's law school tuition. Read more about Google AdSense, click here and here.
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