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colluded to maintain wide spreads. The NASD had received a draft of the Christie-Schultz study in late 1993 and was concerned about its conclusions. Some market makers became aware of the study in early 1994 before the study had been widely publicized. These concerns appeared to have prompted certain market makers to reduce the spreads of several high-profile Nasdaq stocks beginning in late May 1996. In several taped telephone conversations, traders attributed the narrowing of the dealer spreads in late May to the Bear Stearns meeting and the reports of the Christie-Schultz study conclusions. |
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On October 19, 1994, reports of a Department of Justice investigation into allegations of price fixing by Nasdaq dealers were published. The following day, the Los Angeles Times began a six-part series highly critical of the Nasdaq market. The article was written by Scott Paltrow and entitled "Inside Nasdaq, Questions about America's Busiest Stock Market." The Los Angeles Times series was critical of the Nasdaq market and described instances of harassment of my market-making firm, Domestic, which had narrowed spreads. |
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Scott Paltrow became a major catalyst. Scott spent several hours delving into my perception of the industrywide abuses of the public. Apparently after researching and verifying the facts, he proceeded to write a revealing article. I applaud Scott's courage and viewed this as one of journalism's finer moments. |
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The first article identified a trader at one market-making firm (Firm A) which called Domestic and complained, "You guys break the spread for 1,000 shares?" The next day, Firm A began to move its quotes in $ 1/8 increments. |
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The NASD decided to investigate these incidents. Domestic had previously complained to the NASD's Market Surveillance Department about at least one of these incidents. Domestic sent a letter to the Market Surveillance Department on June 6, 1994, describing the episode and attaching a printout of a harassing SelectNet message. According to Domestic's letter, a market maker sent the message "Pathetic" to Domestic immediately after Domestic had narrowed the inside |
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