The New York Stock Exchange will investigate the two-day avalanche of trading that sent the price of RCA Corp. stock leaping $13 in advance of General Electric's announcement that it would acquire RCA for $6.28 billion, John J. Phelan Jr., chairman of the NYSE, said yesterday.
"We are really going to try to dissect this," said Phelan. He said the crush of buy orders had rung all the bells on the exchange's computerized surveillance system, which detects suspicious patterns of trading activity. Under Securities and Exchange Commission rules, investors are prohibited from trading on inside information -- news about a company that has not been made available to the public.
Expressing concern about the RCA buying episode, Phelan said, "I dislike that very much." Compared with other NYSE inquiries, he said, "We are going to throw more resources into it . . . more people, more time, more effort."
Phelan said the job of retracing the trading in RCA stock will be easier because it spans only two days, but it still will be extremely complicated and could take several months.
"You've got to get every buyer and every seller of any significance. You've got to go back and see who they're buying and selling to, where they're coming from, what office they're coming out of, who was the original customer involved, whether there was an interlocking relationship with a variety of customers."
The NYSE, he said, now has computer access to the names of all buyers and sellers, with the exception of shares held for individuals in "street name" -- the name of brokerage houses. If those names are needed, he said, they can be obtained by the SEC, which has the authority to get them.
A NYSE spokesman said later that when the probe is completed, the exchange "may take any necessary action itself or may turn information over to the Securities and Exchange Commission for future action." Results of the inquiry will not be made public unless disciplinary action is taken.
SEC officials declined to comment.
Phelan, in an interview with Washington Post editors and reporters, expressed surprise that the run-up in RCA stock, given the scope of the merger, had been confined to two days. Other merger-associated stock moves have gone on for three weeks, he said.
"It would seem that the people who were doing the negotiations had a pretty tight lid on it until almost the last moment. Obviously, somehow, the cat got out of the bag," he said.
Phelan said he doubted professional investors had an edge over individual investors in their access to information about the RCA-GE deal. Phelan said RCA had been on a prospective takeover list for 18 months and subject to "constant chatter" that could influence the price.
RCA stock, which closed at $49.88 on Monday, closed at $53.13 on Tuesday and $63.50 on Wednesday, for a two-day gain of $13.62. The GE-RCA merger was announced after the market closed Wednesday. The sudden wave of rumor-based buying took place on a huge two-day volume of 7.7 million shares on the NYSE.
The RCA fever extended to other trading centers, including the third market represented by Jefferies & Co. of Los Angeles, a private trading firm. Jefferies officials said yesterday they traded almost 2 million RCA shares.
Phelan said that it was because of firms such as Jefferies that the Big Board was reluctant to declare a trading halt in RCA or other stocks.