## Facts

- The SEC brought a public administrative proceeding against multiple registered broker-dealer firms that acted as Nasdaq market makers in various securities.
- As market makers, respondents posted continuous two-sided quotations (bid and ask) in the Nasdaq quotation system, affecting the inside bid, inside ask, and inside spread.
- The SEC found that certain respondents engaged in coordinated communications with competing market makers to influence posted quotes and maintain wider spreads, rather than competing to narrow spreads.
- The SEC found that some respondents intentionally delayed reporting completed trades to Nasdaq’s trade reporting system, affecting dissemination of last-sale price and other market information.
- The SEC determined these practices distorted apparent price competition and transparency, impaired liquidity, and caused customers to trade at worse prices than in a competitive market.
- Each respondent submitted an offer of settlement that the SEC accepted; respondents consented to the order without admitting or denying the SEC’s findings (except jurisdiction).

## Issues

1. Whether coordinated quoting communications among Nasdaq market makers to influence quotes and spreads constituted manipulative or deceptive conduct under Exchange Act § 10(b) and Rule 10b-5 and/or violations of applicable SRO fair-dealing and anti-manipulation rules.
2. Whether intentional delays in reporting completed trades constituted manipulative conduct and violated rules requiring prompt, accurate trade reporting.
3. What sanctions and remedial undertakings were appropriate to address the misconduct and deter similar conduct in dealer quotation markets.

## Decision

- The SEC accepted the respondents’ settlement offers and issued a settled administrative order.
- The SEC found that respondents’ coordinated quoting and trade-reporting delays violated federal securities law anti-manipulation/anti-fraud provisions and applicable SRO rules requiring fair dealing and accurate, timely reporting.
- The SEC imposed sanctions that included censures and monetary penalties.
- The SEC required undertakings designed to strengthen compliance and supervision to prevent recurrence and to improve quote integrity and trade-reporting practices.

## Legal Principles

- Concerted dealer conduct to influence quotations or preserve wider spreads can be treated as manipulative because it distorts market signals of supply, demand, and competitive price setting.
- Timely and accurate trade reporting is material to market transparency and price discovery; intentional reporting delays that selectively withhold market information may constitute manipulative conduct.
- Broker-dealers in market-maker roles have obligations under federal securities laws and SRO rules to conduct business consistent with just and equitable principles of trade and to avoid practices that mislead market participants about trading conditions.
- The SEC may resolve Exchange Act enforcement matters through settled administrative orders imposing penalties, censures, and compliance undertakings without requiring admissions of wrongdoing.

## Conclusion

The SEC concluded that coordinated quoting practices and intentional trade-reporting delays by Nasdaq market makers distorted material market information and harmed customers and market integrity, and it resolved the matter through a settled order imposing sanctions and compliance-focused remedial measures.


In re Certain Market Making Activities on Nasdaq, Exchange Act Release No. 40961, 1998 WL 919673 (S.E.C. Dec. 30, 1998)