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odd-eighth-point increments. Talk about innovative thinking. My quoted prices were an eighth of a point better than the competition. At Domestic Securities we took pride in cutting the spreads in order to foster competition. Yet orders did not come rolling inbut the spreads did decrease. When I broke the line by making a market at the odd-eighth price, I was excoriated by the market makers (for allowing the free market to establish the price of Nasdaq stocks). |
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This so-called ''pricing convention" (a fancy name invented by the colluders for price fixing) was generally put forth by market makers as a work ethic, a time-honored tradition or professional norm that other market makers were expected to follow. The pricing convention was sometimes enforced through intimidation and actual infliction of financial harm. |
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Most interestingly, and not unexpectedly, the NASD failed to investigate allegations of price fixing and other market-maker improprieties even though the NASD had been made aware of these practices since 1990 by one of its own executives. It always amazes me that doctors, teachers, and neighbors never notice signs of child abuse until after the child dies from neglect. As far as the NASD regulators were concerned, all seemed to be under control at the market makers' trading departments. |
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The SEC investigation also found that the NASD's surveillance and enforcement of important market integrity rules was inadequate and that the NASD failed to vigorously enforce rules applicable to its market makers. Numerous market makers failed to honor their quotations and repeatedly failed to report their trades on time, as required by SEC and NASD rules. Certain market makers also refused to honor their trades in a discriminatory fashion against disfavored market participants such as options traders, competing specialists, short sellers, and SOES order entry firms. |
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One of the major benefits of the investigations was that the real bandits were unmasked. The term SOES bandit is now an anachronism and a joke. The new respectability and credibility became the threshold to go forward with Direct Access Electronic Trading. |
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