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the 1994 report of Professors Paul H. Shultz and William G. Christie entitled ''Why Do NASDAQ Market Makers Avoid Odd-Eighth quotes?" The market makers even held a mass meeting at Bear Stearns in order to come to one another's defense. |
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The class-action cases should have been great sport because of the solidity of the evidence. My prediction had been that the only hard-dollar reimbursement for the victims of the fraud would come from the class-action awards. As of the writing of this book, the Wall Street securities firms have proposed to settle the class-action claims for over $1 billion, which sounds like a great deal of money until you put the dollars into perspective and realize that $1 billion is about one quarter's earnings for only one of the major market makers. |
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The settlement pain won't be evenly shared. In reaching the class-action settlement, the market makers used a pro rata formula under which each firm's contribution was based upon its share of Nasdaq trading. Under the settlement, the firms will still officially deny any wrongdoing. The market makers still won't admit that they did anything wrong. The market makers believed that their agreed-upon "convention" of pricing stocks in even eighths was honestly furthering the American spirit of capitalism. They even had the audacity to brand SOES traders as "bandits!" I believe that no one involved in the market during this period can ever again earn the public trust. |
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Merrill Lynch, the largest U.S. brokerage firm, will pay the most (about $100 million). The San Franciscobased Hambrecht & Quist Group was stuck with a proportionately large chunk of the settlement (about $20 million), because it was more dependent on trading Nasdaq stocks. The settlement is not a big deal even for Hambrecht in that $20 million will amount to about 75 cents a share to a company that First Call Corp. estimated will earn $1.90 for fiscal 1998. |
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However, the payout of $1 billion in and of itself demonstrates the genuine fear that the wrongdoers had of the huge potential liability. Certainly, $1 billion qualifies as much more than a chump-change nuisance value settlement when the |
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