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disappeared and then resurfaced in providential jobs with the collusive market makers. |
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A volcano of SEC wrath erupted against the NASD. Essentially, the SEC came to require empirical evidence from the NASD correlating proposed rule changes to real results. No longer did the market-maker-dominated NASD wear white hats and continue to be the perennial good guys like the heroes in old black-and-white movies of the wild west. A barrage of criticism from academia, the media, and me was the prelude to the SEC and Department of Justice investigation into the conduct and affairs of the NASD and many powerful market-making firms. |
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The industry had speculated that the SEC and the Department of Justice inquiries would be harmless; these thoughts evaporated quickly as the U.S. Department of Justice all but indicted the NASD and 24 leading market makers. Even though criminal indictments were eliminated as a possibility fairly early in the Department of Justice investigation, market-maker smugness melted into concern as the SEC changed the rules of the game and in fact spelled out the potential demise of the "good old boy" network. |
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The NASD and the major market makers entered into a proposed consent judgment in federal court under which future violations of the consent decree will be cause for criminal actions. The NASD was allowed to maintain its claim of innocence by not contesting the charges. Instead of jailing the NASD officials (who permitted an environment fraught with abuse and cast a blind eye to fairness and morality), the SEC enacted encompassing changes to the NASD structure and to the trading rules. This seemed to be the only rational action. Otherwise public confidence in the entire market structure would have disappeared and could have caused a major meltdown. I would like to think that any future violations of the consent agreement would cause the market makers to be treated under the one-bite doggy rule where vicious dogs have to put down on the second bite. |
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The SEC's investigation found that the Nasdaq market did not consistently operate in an open and freely competitive |
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