The NASD said Wednesday it has sanctioned four big brokerage firms for improperly pricing corporate bonds, inadequate record-keeping and supervision violations.

NASD ordered Goldman, Sachs & Co., Deutsche Bank Securities Inc., Miller Tabak Roberts Securities LLC and Citigroup Global Markets Inc. to pay US$5 million each for rule violations relating to trading in corporate high-yield bonds.

All four firms were cited for charging excessive markups or markdowns, record-keeping and supervisory violations. The firms were also ordered to revise their written supervisory procedures for high yield bond sales and purchases within 60 days. The four firms also were ordered to make restitution payments, for the markup/markdown violations. In concluding these settlements, the firms neither admitted nor denied the charges.

In addition, NASD charged Goldman Sachs, Deutche Bank and Citigroup Global Markets with trade-reporting violations. Two of the firms – Deutsche Bank and Miller Tabak Roberts – were charged with failure to register one or more supervisors on the firms’ high yield desks.

The regulator says that it found that in 2000 and 2001, Goldman Sachs charged markdowns ranging from 9.4% to 30.4% on five pairs of trades. From mid-2000 through early 2002, Deutsche Bank charged markdowns ranging from 9.6% to 16.6% on seven pairs of trades. In 2001 and early 2002, Miller Tabak Roberts charged markdowns ranging from 9.4% to 18% on three pairs of trades. Finally, from 2000 to early 2002, Citigroup charged markups and markdowns ranging from 13.1% to 32.2% on three pairs of trades. The firms bore little or no risk in these transactions.

In addition, all four firms failed to create or maintain records that clearly and accurately reflected the time customer orders were entered or the time those orders were executed. Such basic record keeping is required by SEC and NASD rules. Furthermore, the systems used by Goldman Sachs and Deutche Bank to report the high yield bond transactions did not allow the firms to report accurate execution times when the trades were input late. Reliance on systems that prevent compliance with applicable rules is an unacceptable practice.

NASD also found that supervision at all four firms was deficient. For nearly two years at Goldman Sachs and for at least six months at Deutsche Bank, there was confusion as to who was responsible for reviewing certain high-yield bond trades. As a result, it was unclear that any supervisory review of those trades occurred. Even when high-yield bond trades were reviewed, the supervisory reviews at Goldman Sachs and Deutche Bank failed to conform to the policies or standards set forth in the firms’ own written supervisory procedures. At Miller Tabak Roberts, the review of these trades was based on an unwritten internal guideline that was inconsistent with the NASD Markup Policy. At Citigroup, the supervisory procedures did not provide for a review to determine compliance with NASD’s markup policy. The firms did not identify these fundamental supervisory failures until NASD initiated its investigations.

“NASD rules require that firms sell all securities, including corporate high-yield debt, at fair prices,” said NASD vice chairman Mary Schapiro. “NASD markup policy has been clear that markups and markdowns generally should not exceed 5% and, for most debt transactions, that figure should be lower. Numerous SEC and court rulings have reiterated these principles throughout the years. In the cases we announce today, markups and markdowns were clearly outside these well-established guidelines.”