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Policy Watch: Did Nasdaq Market Makers Implicitly Collude?

Author

Listed:
  • William G. Christie
  • Paul H. Schultz

Abstract

This paper chronicles the research that led to the conclusion that Nasdaq marketmakers implicitly colluded to maintain supracompetitive spreads (Christie and Schultz, 1994). The paper provides a brief description of the differences between a dealer and an auction market, and highlights the result that NASDAQ marketmakers quoted a majority of large issues exclusively in even-eighths. The paper then provides a personalized description of the events that soon followed, including the publicity surrounding the article, the ensuing antitrust investigation by the Department of Justice, and the abandonment of these agreements once the practice was disclosed.

Suggested Citation

  • William G. Christie & Paul H. Schultz, 1995. "Policy Watch: Did Nasdaq Market Makers Implicitly Collude?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 199-208, Summer.
  • Handle: RePEc:aea:jecper:v:9:y:1995:i:3:p:199-208
    Note: DOI: 10.1257/jep.9.3.199
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.9.3.199
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    References listed on IDEAS

    as
    1. Christie, William G & Harris, Jeffrey H & Schultz, Paul H, 1994. " Why Did NASDAQ Market Makers Stop Avoiding Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1841-1860, December.
    2. Christie William G. & Huang Roger D., 1994. "Market Structures and Liquidity: A Transactions Data Study of Exchange Listings," Journal of Financial Intermediation, Elsevier, vol. 3(3), pages 300-326, June.
    3. Christie, William G & Schultz, Paul H, 1994. " Why Do NASDAQ Market Makers Avoid Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1813-1840, December.
    4. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, January.
    5. Neal, Robert, 1992. "A Comparison of Transaction Costs between Competitive Market Maker and Specialist Market Structures," The Journal of Business, University of Chicago Press, vol. 65(3), pages 317-334, July.
    6. Brock, William A. & Kleidon, Allan W., 1992. "Periodic market closure and trading volume : A model of intraday bids and asks," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 451-489.
    7. Chan, K C & Christie, William G & Schultz, Paul H, 1995. "Market Structure and the Intraday Pattern of Bid-Ask Spreads for NASDAQ Securities," The Journal of Business, University of Chicago Press, vol. 68(1), pages 35-60, January.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Joe Chen, 2005. "The Market Structure of Nasdaq Dealer Markets and Quoting Conventions," CARF F-Series CARF-F-040, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    2. Eric Zitzewitz, 2012. "Forensic Economics," Journal of Economic Literature, American Economic Association, vol. 50(3), pages 731-769, September.
    3. Roux, Catherine & Thöni, Christian, 2015. "Collusion among many firms: The disciplinary power of targeted punishment," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 83-93.
    4. Joe Chen, 2005. "The Market Structure of Nasdaq Dealer Markets and Quoting Conventions," CIRJE F-Series CIRJE-F-357, CIRJE, Faculty of Economics, University of Tokyo.
    5. Eric Zitzewitz, 2014. "Retail Securities Regulation in the Aftermath of the Bubble," NBER Chapters,in: Economic Regulation and Its Reform: What Have We Learned?, pages 545-588 National Bureau of Economic Research, Inc.
    6. Jay R. Ritter, 2008. "Forensic Finance," Journal of Economic Perspectives, American Economic Association, vol. 22(3), pages 127-147, Summer.
    7. Benston, George J. & Wood, Robert A., 2008. "Why effective spreads on NASDAQ were higher than on the New York stock exchange in the 1990s," Journal of Empirical Finance, Elsevier, vol. 15(1), pages 17-40, January.
    8. Asker, John, 2010. "Leniency and post-cartel market conduct: Preliminary evidence from parcel tanker shipping," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 407-414, July.

    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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