Nasdaq Case

Quoting Convention of NASDAQ Dealers Prompts a Justice Department Probe

Michael Baye and Patrick Scholten prepared this case study to serve as the basis for classroom discussion rather than to represent economic or legal fact. The case is a condensed and slightly modified version of the public copy of the Complaint of Violation Statement, Civil Action No. 96 CIV 5313, dated July 17, 1996 in the United States of America v. Alex Brown & Sons Inc., et al.

NASDAQ The NASDAQ Stock Market, Inc. (NASDAQ) is the second largest securities market (measured by dollar value of trading) in the United States. NASDAQ market makers have offices in various states. Their market-making activities, and the violation alleged, affect investors located throughout the United States. During the time period covered, the companies in question have traded substantial numbers of shares of NASDAQ stock across state lines in a continuous and uninterrupted flow of interstate trade and commerce. The activities of each company as described here have been within the flow of, and have substantially affected, interstate commerce.
Market makers establish their NASDAQ quotes in a particular stock by simultaneously quoting prices at which they are willing to buy and sell particular NASDAQ stocks. The quote at which an individual market maker is willing to buy a particular stock is known as its "bid"; the quote at which it is willing to sell is known as its "ask." A market maker’s bid is always lower than its ask, and the difference between the two is known as its "dealer