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Not unexpectedly, the SEC investigation disclosed that a significant number of market makers had failed to comply consistently with their firm quote obligations. Tapes of traders' telephone lines reviewed during the investigation included numerous conversations of market makers declining to transact at their quotes for seemingly spurious reasons. In addition, the tapes of market makers' telephone calls and market makers' testimony disclosed that they often instructed other market makers to "give me ahead," i.e., use the name of the first market maker to claim a trade-ahead exception if a third market maker asked the second to complete a trade. The following is a transcript submitted by the SEC of an audiotaped telephone conversation between two Nasdaq traders at different firms. |
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TRADER 1: I saw [stock] get a little weaker. I went out and hit [firm 3], and he told me [firm 4] ahead. |
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TRADER 2: Oh really? |
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TRADER 1: If [firm 4] comes in to you, give me ahead. |
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TRADER 2: OK. |
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TRADER 1: I just don't like the way I don't like the stock. I got a feeling that my seller is going to come back and sell more. |
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TRADER 2: I got you. |
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TRADER 1: But I don't want to get you in trouble in the thing, either. |
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TRADER 2: Oh, it doesn't matter. I made some sales yesterday. I'm long 8 now. |
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TRADER 1: Yeah. It's that I don't want to see you get hurt, so. |
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TRADER 2: Look. |
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TRADER 1: Stay put if you'd like, if you want. And, you know, then give me ahead or tell them you've got me tied up. Why don't we do that? Maybe we'll be able to make some more sales. I'm long about 5. |
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TRADER 2: OK. |
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NASD rules require each member firm to enter and maintain two-sided quotations on a continuous basis for every Nasdaq |
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