I recall it was $1 billion.
Whether it's $1 billion or $1.00, for large companies such as theirs - and considering as you aren't that there were at least twenty of them, maybe more - it's not as immense a number as your bolding attempts to insinuate. Would you necessarily equate the size of a fine to the magnitude of a violation or crime?
I guess they were innocent but decided to pay $1 billion anyway...
Perhaps. It was a settlement, specifically an AWC - acceptance, waiver, and consent. In negotiating such (whether in the securities markets, in cases of environmental pollution or other such situations) both parties save time and taxpayers' monies by avoiding long, costly, and often hard-to-prove (or untested) legal theories. And, the explicit result in terms of the actioned-against entity(s) is not admitting guilt while not denying wrongdoing.
I guess the two Princeton Mathematics professors who ran a detailed study exposing Wall Street's rigging of Nasdaq quotes so that spreads would be artificially wide just made it up...
The research wasn't made up, but the conclusions drawn from it were tenuous at best, academically bereft at worst.
NASDAQ and other OTC financial markets tend to be oligopolies, in which a limited number of market participants make prices. (Recall that these are days before ECNs, before the online brokerage explosion, and indeed, before the migration of many prop desks to the NASDAQ/OTC dealing business.) In such markets, a recognized, oft-observed phenomenon is that pricing conventions often arise which are a function not only of economic expedience but of behavioral factors, conscious or unconscious.
(This is not to say, not for a moment, that there weren't violations. But to characterize them as some huge, Street-wide conspiracy is nothing short of ignorance - a form of ignorance, I'd personally add, that leaves true violators in place, unaffected.)
The same weak argument was made in the mid-1980's regarding airline ticket pricing (another oligopoly), whereby one firm price would move its' prices by $10 or $20 and - almost in lockstep - other firms would do the same. As it turned out, the people inputting the prices never really questioned the practice; they just looked at other prices, entered them, and 'followed the leader,' so to speak, unless a new marketing initiative was introduced.
It evokes the old Candid Camera skit where an elevator opens and everyone inside is standing backwards. Individuals getting in instinctively stand backwards. A few will ask what's going on, some will face the door, but most will join the herd.
Anyway; the "price fixing" argument didn't carry water then, and it doesn't now. And that doesn't even begin to ask the deeper question - the more potent question, in my estimation - of what is "too big" a spread? From what (or whose) value scale comes the standard as to what profit margin is "too" large?
Many of the same people who, on SI and elsewhere, whine about spreads would have serious issues with the standardization of their particular profession's earning potential, LOL. Sounds a bit like socialism, doesn't it?
Alas, I digress; back to "price fixing." So why, given the existence of a potent and academically-sound retort, did the firms settle, you'll ask?
Well, probably because the time taken to prove that - and far more pressing, the daunting prospect (for anyone, and not necessarily indicative of guilt) of having to open ones' books and records for a lengthy, probing investigative process - is something no one (individual or corporate) welcomes. And, by putting the case behind them as they did, they could for only the price of a small hit to capital (which endangered none of them, I'm sure) go on with the business of business. A dollar today is worth more than a dollar tomorrow, so paying a fine to put an issue to bed - even one as disingenuous as this - is rational and economically sensible, especially where public and private shareholders are indicated.
As it turns out, the result was hilariously predictable. By punishing an oligopoly in spite of economically documented phenomena, and then in turn artificially - through several subsequent regulatory initiatives - attempting to engineer their twisted notion of fairness and put in place an unjustly paternal regime, the powers-that-be have done more to harm investors than financial market participants ever could have.
LP. |
