An Explanation for Nasdaq Price Movements

The observation of two academicians (“Study Suggests Collusion Among Brokerage Firms,” May 26) that trades in a large number of stocks on the Nasdaq Stock Market tend to move in price increments of one-quarter rather than one-eighth has a simple and direct explanation: the large-transaction character of many Nasdaq trades.

Today, nearly half of Nasdaq share volume is made up of block trades of 10,000 shares or more. On Nasdaq, large investors expect competing market makers to trade in block sizes at one price. Similarly, smaller investors also value receiving single-priced executions for their trades on Nasdaq. Accordingly, the tendency of some stocks on Nasdaq to move in quarters simply reflects the business expectations that substantial executions will be provided at each successive price.

Nonetheless, and admittedly without adequate evidence, the authors of the paper, as reported in the article, conclude that the price movements suggest collusion among market makers.

The authors of the paper have since advised us that they have removed the suggestion of collusion from the title of their paper. Accordingly, we have requested that the researchers revise their draft study to delete any other unsubstantiated suggestion of collusive actions.

We believe they have done all investors and market participants a disservice by suggesting collusion without proof. To put out a disingenuous report of this kind only serves to confuse investors and mislead the public about the quality of America’s public markets.

JOSEPH R. HARDIMAN

President

Nasdaq Stock Market

Washington