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TRADER 1: Well, then you wouldn't do the retail, you moron. |
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TRADER 2: Like [name of Trader 3], then there'd be no need for you, you jarhead. |
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The advantages to market makers of such limited access systems fostered the development of a two-tiered marketthe public Nasdaq market for retail investors and some institutional investors and the private, limited-access systems where broker-dealers and certain large institutional investors could observe and trade at better prices, yet in similarly sized trades, as in Nasdaq. The availability of these systems, particularly Instinet, reduced the necessity to narrow the Nasdaq spreads, thereby facilitating adherence to the pricing convention and reducing competition in the Nasdaq market. One trader's testimony before the SEC illustrated this point: |
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Back in the eighties you really did not have Instinet as it was [sic] today and so sometimes you would move your market up, you would close your spread to try to signal to another market maker hey, in this case, say going up in the bid I am a buyer and you might go twenty-nine and an eighth bid and stay there for a while and then go down to let people know you are a twenty-nine and an eighth buyer. You have tried institutional and you cannot find. Instinet was not what it was [sic] today; they did not do that kind of volume, so the only way to really let the world know you are a buying [sic] rather than just take them the twenty-nine and a quarter stock is to close your spread or do what you call the odd eighth. |
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Various Nasdaq market makers had exerted pressure on other market makers who acted inconsistently with the trading conventions (by narrowing the inside spread and consequently reducing the profits of all other market makers in the stock). The SEC investigation developed evidence of instances where market makers like my firm, Domestic, entered quotes that narrowed the inside spread and then were the subject of harassing telephone calls. These badgering calls came from |
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