CLERK: [unclear] See, the thing is not what you're doing as far as upping. The thing is, somebody's got to watch out, because the thing is, we're not supposed to be doing this.
TRADER: Right, Right.
The SEC investigation revealed that a market maker merely had to request the waiver and Nasdaq Market Operations granted it. The SEC found that market makers were granted waivers after their SOES exposure had been exhausted because they were away from their desk, working another order, or covering another trader's stocks. None of these was a reason listed in the applicable rules. The NASD lack of enforcement of the unexcused withdrawal rule undermined a fundamental premise of the dealer market: that market makers stand willing to buy and sell securities at all times. Allowing market makers to evade this responsibility reduced liquidity in the market and threatened the ability of investors to execute trades.
NASD Harassment
The NASD made enforcement of the SOES rules a priority. Planning documents of the NASD district offices expressly identified ''aggressive enforcement of SOES rules" as a goal, and various Market Surveillance Department staff members devoted substantial time and effort to enforcement of the SOES rules.
Complaints made by market makers to other individuals at the NASD were also passed on to Market Surveillance for possible review. Senior Nasdaq officers ensured that Market Surveillance followed up on the complaints of market makers. Market makers lobbied the NASD to take disciplinary action against SOES activists. An April 1995 memo from the NASD Liaison Committee of the STA reads:
There is considerable consternation in the Street over what is perceived as the NASD's inability to discipline "SOES firms" for obvious violations of the Short Sale Rule. The senior staff of Market Surveillance, the Chairman of the Market Surveillance
