Broken Markets Regulatory Purgatory推荐.pdfVIP

4 Regulatory Purgatory In 1994, professors William Christie and Paul Schultz produced a research report that would become one of the biggest black eyes for the SEC up until that time. Why Do NASDAQ Market Makers Avoid Odd-Eighth Quotes? found that such quotes—think 1/8, 3/8, 5/8, or 7/8—were virtually nonexistent for 70% of the 100 most actively traded stocks. The minimum spread on many NASDAQ stocks was found not to be smaller than $0.25 in most instances. Christie-Schultz stated, “We are unable to envision any scenario in which 40 to 60 dealers who are competing for order flow would simultaneously and consistently avoid using odd-eighth quotes with- out an implicit agreement to post quotes only on the even price frac- tions.” Although they didn’t explicitly allege collusion, many who read the paper believed market makers were in cahoots with each other. How could this be? How could one of the biggest stock markets in the world conduct business not much differently from the mafia? And where was the SEC? The industry immediately came under intense political and media scrutiny. The SEC was put on the defensive and knew it had to act. It was about to embark on a series of regulations that would be the building blocks for our current fragmented equity market. Whether the SEC knew it at the time, the Commission was playing with the future of Wall Street. Its actions would cause thousands of lost jobs as trading systems run by people were replaced by computer systems that would eventually lead to the proliferation of algorithmic and high frequency trading (HFT). 67 68 Broken Markets Early 1990s Change in Regulations One thing almost all these regulations had in common was that they were approved under the leadership of SEC Chairman Arthur Levitt, who ran the Commission