Nasdaq Hires Nobel Laureate to Help Fend Off Allegations

From Bloomberg Business News

The Nasdaq Stock Market, showing a new resolve to fight charges of price fixing that have clouded its reputation for almost a year, hired Nobel Prize winner Merton Miller to help fend off the allegations.

Miller, an economics professor at the University of Chicago, said he will review an academic study by two of his former students that suggests there may be price fixing among Nasdaq dealers.

Officials at Nasdaq, the nation’s second-largest stock market, were not available for comment. They have denied allegations of price fixing in the past, calling the charges “unfounded.”


Miller said Nasdaq hired Lexecon Inc., a Chicago-based economic consulting firm, which in turn retained him to review the study.

“Defendants in antitrust cases always get the most prominent economist they can,” said Garrett Rasmussen, antitrust lawyer at Patton Boggs & Blow. “The more persuasive and articulate the expert witness for Nasdaq, the more difficulty the government will have to overcome that.”

The academic study, written by Vanderbilt professor William Christie and Ohio State University professor Paul Schultz, found that spreads between the prices available to buyers and sellers of Nasdaq stocks were often at least 1/4 point, or 25 cents. That’s twice as large as the typical spread of 1/8, or 12.5 cents, found on the New York Stock Exchange, and it reflects profits to Nasdaq dealers and costs to investors. The study concludes that there was reason to suspect “tacit collusion” among Nasdaq market makers to keep spreads wide and profits high.

“I’m ultimately being hired by Nasdaq not just to critique (the study), but to discuss the issues,” said Miller, who served as Ph.D adviser to the study’s authors. “I’ve read their study. There are problems they (the authors) are aware of and some they may not be aware of.”

Christie was not available for comment.

Miller said he will work with Sanford Grossman, a finance professor at the University of Pennsylvania’s Wharton School.

The study by Christie and Schultz caused a stir on Wall Street when it was published last May, and it helped prompt two dozen lawsuits against Nasdaq trading firms. Those complaints have since been consolidated into a suit seeking class-action status.


The study drew the attention of the Justice Department, which began an inquiry into the possibility of antitrust violations in the setting of Nasdaq stock prices. The Securities and Exchange Commission is conducting a parallel inquiry.