FOR IMMEDIATE RELEASE                                  AT
WEDNESDAY, JULY 17, 1996                           (202) 616-2771
                                               TDD (202) 514-1888






                                                                 
                                                                 




   JUSTICE DEPARTMENT CHARGES 24 MAJOR NASDAQ SECURITIES FIRMS
           WITH FIXING TRANSACTION COSTS FOR INVESTORS


     WASHINGTON, D.C. -- The Department of Justice and 24 major
Nasdaq securities firms reached a settlement today that will stop
the firms from following an industry-wide practice that fixes
transaction costs for investors who buy and sell stocks on the
Nasdaq market.  As a result of the settlement, millions of
investors will no longer be subject to the anticompetitive
conduct which resulted in higher trading costs for individual
investors and institutions who bought or sold stocks.
     Nasdaq is a computerized public market in which investors
can buy and sell over-the-counter stocks.  It is the second
largest securities market in the U.S., which traded about 
$2.4 trillion of stock last year.  Founded in 1971, it is the
largest electronic screen based equity market in the world. 
     The Department's settlement is significant because--for the
first time in an Antitrust Division settlement--the settling
firms will be required to monitor and tape record telephone
conversations of their Nasdaq traders.  Each firm will install
taping systems to monitor and record no less than 3.5 percent or
a maximum of 70 hours per week of all trader telephone
conversations on its over-the-counter desk.  Any conversation
that violates the proposed order must be provided to the
Department by an antitrust compliance officer within 10 business
days.
     Also, Department representatives can show up at a firm's
office, unannounced, to listen in on trader conversations as they
occur.  These unprecedented enforcement provisions were put in
place to ensure that the firms do not engage in further
anticompetitive conduct.  
     "As a result of this conduct American investors had to pay
more to buy and sell stocks than they would have if there had
been true competition," said Attorney General Janet Reno.  "We
have found substantial evidence of coercion and other misconduct
in this industry.  By providing for the random monitoring of
traders' telephone calls, we expect to deter future price fixing
on Nasdaq."  
     The Department's Antitrust Division filed a civil antitrust
suit charging 24 major Nasdaq market makers who buy and sell
stocks to the investing public with inflating the quoted "inside
spread" in certain Nasdaq stocks, resulting in investors having
to pay more to buy or sell stocks than they would have in a
competitive market.  The inside spread is the difference between
the best buying price and the best selling price of a stock. 
Transaction costs were raised through a long-standing "quoting
convention" followed by traders and enforced industry-wide for
many years, according to the Department's court papers.
     At the same time, the Justice Department settled the case
with a proposed court order forbidding the firms from continuing
their illegal practice.  Both the complaint and proposed court
order were filed in U.S. District Court in the Southern District
of New York in Manhattan.     
     Reno said that the proposed settlement provides all the
relief the Department could expect to get if it litigated the
case to conclusion.  The law does not provide the Department with
statutory authority to recover damages or monetary penalties in
such cases.
     The Department's investigation began in the summer of 1994,
shortly after the publication of an economic study by Professors
William Christie of Vanderbilt University and Paul Schultz of
Ohio State University about the Nasdaq market.
     The Department alleged in its complaint that the firms and
others adhered to and enforced a "quoting convention" that was
designed to deter price competition among the firms and other
market makers in their trading of Nasdaq stocks.
     The quoting convention required market makers to update the
prices they quoted to buy and sell Nasdaq stocks on the Nasdaq
screen by a quarter (25 cents) rather than an eighth (12 cents),
whenever their individual "dealer spreads" were 75 cents or more
per share.  A "dealer spread" is the difference between the price
an individual market maker offers to buy a stock and the price it
offers to sell the same stock, on a per share basis.   
     "If traders always quote their prices in quarters instead of
eighths, then simple arithmetic tells you that the difference
between the best buying and selling price will never be less than
a quarter," said Anne K. Bingaman, Assistant Attorney General in
charge of the Department's Antitrust Division.  "The market
makers on Nasdaq kept the difference between the best buying and
selling prices wider than they would have been in a competitive
market, which cost investors money."    
     The quoting convention imposes a penalty on Nasdaq market
makers who want to narrow the "inside spread" in a stock. 
Because of this penalty--increased risk of trading the stock on
the "wrong" side of the market--market makers had an incentive to
avoid using eighth-point increments to update their stock quotes. 
The result has been that the inside spreads in a significant
number of Nasdaq stocks have been wider than they would have been
in a competitive market.  This meant that investors were paying
higher trading costs for buying and selling stocks on the Nasdaq
market.
     The Department alleged that traders used the telephone to
enforce adherence to the quoting convention.  Traders who
mistakenly entered a price quote of an eighth were promptly
telephoned by other traders and told to correct their price
quote.  Traders would also make harassing calls to other traders
who did not adhere to the quoting convention.  The Department
said that some traders often refused to deal with other traders
who did not follow the convention.
     The Department said that new traders were trained to update
their price quotes in quarters for stocks with wide dealer
spreads, and taught that quoting those stocks in eighths was
unethical and unprofessional.  The Department alleged that market
makers used peer pressure to enforce the agreement.  A market
maker who deviated from the quoting convention might be told--
"You're spoiling it for everybody."
     The Department's competitive impact statement notes that:
       Market data show that market makers began to change
their price quoting practices when confronted by the adverse
publicity from the Christie/Schultz economic study and the
increasing pressures from government investigations.

       Market data show that while the market makers refused to
publicly quote prices in eighths on the Nasdaq screen, they did
trade stock in eighths with each other on a comparable trading
system, called Instinet.  

     The proposed order contains strong remedial measures
designed to prevent and detect violations of its terms, and if
approved by the court, would:
       Prohibit market makers from agreeing with other market
makers to adhere to the quoting convention, or to fix, raise,
lower, or maintain prices or quotes for Nasdaq securities.

       Prevent market makers from harassing or intimidating
other market makers for lowering their spread in any Nasdaq
security or about the quantity they are willing to trade at its
quoted price.


       Require each firm to designate an antitrust compliance
officer to instruct traders and others concerning the
requirements of the proposed order, and to listen to tapes
created under the order.   

       Allow representatives of the Antitrust Division, without
pre-arrangement, to appear at a firm's office to listen in on
trader conversations the firm is taping as they are occurring.   

       Provide that the Antitrust Division receive complaints
of possible violations and direct taping of particular traders in
response to complaints, or on its own initiative, to deter and
ferret out violations of the proposed order.  

       Provide for punishment by civil and criminal contempt,
if it is violated.  Thus, traders with knowledge of the proposed
order could, after hearing and judgment, be required to pay large
monetary penalties or even be sentenced to jail, if found to be
in willful violation of the prohibitions.  

     Also, the Department designated an attorney in the
Division's New York Field Office, Geoffrey Swaebe, to begin
serving immediately as the Antitrust Division's principal Nasdaq
compliance officer.   
     The Antitrust Division has established a hotline to receive
complaints about Nasdaq or any other subject, which is operative
as of today at 1-888-7DOJATR.  
     Among the 24 firms are some of Nasdaq's biggest market
makers.  They are: 
     Alex. Brown & Sons Inc.
     Bear, Stearns & Co. Inc.
     CS First Boston Corp.
     Dean Witter Reynolds Inc.
     Donaldson, Lufkin & Jenrette Securities Corp.
     Furman Selz LLC
     Goldman, Sachs & Co.
     Hambrecht & Quist LLC
     Herzog, Heine, Geduld Inc.
     J.P. Morgan Securities Inc.
     Lehman Brothers Inc.
     Mayer & Schweitzer Inc.
     Merrill, Lynch, Pierce, Fenner & Smith Inc.
     Morgan Stanley & Co. Inc.
     Nash, Weiss & Co.
     OLDE Discount Corp.
     PaineWebber Inc.
     Piper Jaffray Inc.
     Prudential Securities Inc.
     Saloman Brothers Inc.
     Sherwood Securities Corp.
     Smith Barney Inc.
     Spear, Leeds & Kellogg LP (Troster Singer)
     UBS Securities LLC
     
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