Policy Watch: Did Nasdaq Market Makers Implicitly Collude?

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.