At 11:33 a.m. yesterday, shares in Columbia-based Sylvan Learning Centers were selling for $32.50. Eighteen minutes later, they were selling for $35.125 -- an 8 percent jump.
At 1:17 p.m., Bloomberg News Service carried an alert that trading in Sylvan stock on the Nasdaq exchange had been suspended pending an announcement by the company. At 1:21, Sylvan said it had landed a lucrative new contract that would dramatically increase its visibility.
That confluence of events would normally be enough to attract the attention of the market watchdogs of the National Association of Securities Dealers -- ever alert for signs that investors might be trading on insider information.
But this case could be a little more tricky. The other party to the Sylvan contract is the NASD itself, which announced that it would use Sylvan's network of computerized testing centers to administer examinations and deliver continuing education to its members.
Stephan Beauchesne, a spokesman for the NASD, said trading patterns similar to those of Sylvan's yesterday have triggered other investigations.
"Generally, a 10 percent increase in 20 minutes would be something we would look at," Mr. Beauchesne said.
Mr. Beauchesne, however, could not say whether the Sylvan trading would be investigated by the NASD.
Outside experts in securities law agreed that the circumstances were highly likely to be investigated by the Securities and Exchange Commission.
"It's fair to say that this kind of announcement move is going to attract the attention of the SEC and the NASD itself," said Mark Sargent, professor of securities law at the University of Maryland Law School.
"This is a really unusual situation in which the provider of the market is a party to the transaction that's going to affect the price of the stock," he added.
The trading patterns threatened to overshadow what was otherwise a cause for celebration at Sylvan, which has emerged as the nation's leading provider of computerized testing services.
Christopher Hoehn-Saric, Sylvan's chief executive, estimated that the contract would be worth $5 million to $6 million a year to Sylvan, which will administer NASD broker certification tests at 280 of its centers throughout the United States. NASD now administers its tests at 53 test centers around the country, forcing many brokers to travel long distances for exams.
Mr. Hoehn-Saric said the company's trading yesterday was "sort of strange" because the share price jumped so much on relatively light volume. But he said he had no idea what would have caused the spurt before the announcement.
Douglas Becker, Sylan's president, said yesterday that the stock had traded at $34.25 Jan. 17, and ascribed yesterday's run-up to the volatility of a thinly traded stock. He said Sylvan and the NASD had taken extraordinary care to prevent any leak of the news.
The sudden surge in Sylvan's stock yesterday took place through a flurry of 1,000-share trades, which drove the price upward in steady increments until trading finally resumed a normal pattern at 11:54 a.m. After the announcement, Sylvan stock continued to rise, ultimately closing at $36.50, up $3.75.
Andrew M. Brooks, head of trading at T. Rowe Price, said that the pattern of yesterday's Sylvan transactions looked suspicious but did not conclusively prove there was a leak. But he said one thing was clear: Sylvan's market-makers got "SOES-ed."
Mr. Brooks explained that various "sharpies" in small brokerage firms have learned a technique under which they can use the Nasdaq's Small Order Execution System (SOES) to suddenly and anonymously drive up targeted stocks.
He said the SOES system was set up at the federal government's insistence after the 1987 stock market plunge as a way of ensuring that smaller traders could conduct transactions as easily as large institutional investors.
But he said some small firms have found that they can use the SOES system to flood the market with orders for a thinly traded stock until the market-makers are forced to go into the market and further bid up the price to satisfy the orders.
"You get this dog-chasing-its-tail type spiral," Mr. Brooks said. "If you're not on guard, you can be taken 15-20 times in 10 seconds, plus you don't ever know who you're dealing with."
Mr. Brooks said the NASD wants to take measures to stop the abuse of the SOES system but that the SEC has balked.
NASD's Mr. Beauchesne said the organization would be able to investigate its own role in the matter if such an action were warranted. He said the market surveillance department was totally separate from the part of the organization that negotiated the contract and would not know anything about such an announcement in advance.
"They would treat all cases equally," he said.
"When there are questions like this, very often some sort of effort will be made to retain special counsel to investigate the situation, and of course the SEC will watch what's going on," said Professor Sargent at the UM Law School.