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such orders may be regarded as the functional equivalent of market-maker quotes. SelectNet is an electronic trading system owned and operated by the Nasdaq Stock Market, Inc., and is available as a trading vehicle only to NASD member firms. Instinet Corporation is a wholly owned subsidiary of Reuters International. |
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Market makers regularly placed orders to buy or sell even-eighth stocks at odd-eighth prices on these systems, while quoting the same stocks almost exclusively in even-eighth increments on Nasdaq. One tape obtained by the SEC in its investigation contained a conversation by a market maker who refused to put an odd-eight quote on Nasdaq when requested to do so by a retail broker, but indicated he would put an order on Instinet containing the odd-eighth quote. He explains to the broker that displaying an odd-eighth quote in the stock on Nasdaq would make a "Chinese market," which was considered unprofessional and which other market makers did not like. He stated: |
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I really can't do that 'cause it creates what they call a Chinese market, stock trades in ¼ point. I'm on Instinet. If somebody wants to whack me at 7/8ths, that's where they're going to whack me. |
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Only certain brokers, market makers, and institutional investors had access to the quote information and trade opportunities displayed on Instinet and SelectNet. They were not directly available to individual investors and other market participants. In the following conversation, taped by the SEC, two traders commented upon a suggestion made at a meeting by another trader (Trader 3), who proposed that retail customers be given access to Instinet: |
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TRADER 1: What did he [Trader 3] have to say? |
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TRADER 2: "I come from [firm], and we do a lot of retail, and I think there ought to be a way that our customers have access to Instinet." I'm like, |
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TRADER 1: What? |
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TRADER 2: What? |
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