[Text only of letters sent from the Commerce Committee Democrats]
The Honorable Janet Reno
Attorney General
Department of Justice
Constitution Ave. and 10th Street, N.W.
Washington, D.C. 20530
The Honorable Arthur Levitt, Jr.
Chairman
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Attorney General Reno and Chairman Levitt:
This summer will mark the two-year anniversary of your historic enforcement actions against 24 major Nasdaq securities dealers and against the National Association of Securities Dealers, Inc. (NASD) itself. I am writing to request that you submit reports by the close of business on Friday, July 17, 1998 on the status and effectiveness of the remedial actions undertaken by the various parties under the terms of the settlements in these proceedings.
On July 17, 1996, the United States submitted a Competitive Impact Statement, and a Stipulation and Order, with the consent of the defendant Nasdaq traders in the Government's civil antitrust proceedings. The Stipulation and Order at pages 5 through 7 expressly prohibited each defendant from engaging in certain specified conduct in connection with the activities of its OTC desk in making markets in Nasdaq securities. In order to ensure compliance with these prohibitions, the Stipulation and Order at pages 9 through 15 required each defendant to perform specific undertakings, including the installation of systems capable of monitoring and recording telephone conversations on its OTC desk. Please advise us in the case of each defendant of the extent to which these undertakings have been properly implemented and assess their effectiveness in deterring the prohibited conduct.
On August 8, 1996, the Securities and Exchange Commission released a Report Pursuant to Section 21(a) of the Securities Exchange Act of 1934 Regarding the NASD and the Nasdaq Market, and an Order Instituting Proceedings, making findings and imposing remedial sanctions. The Order at pages 6 through 9 set forth a number of undertakings with which the NASD was required to comply "within the next twelve months (or within such other time period as is otherwise noted)." Please advise us of the extent to which these undertakings have been implemented and assess their effectiveness, as relevant, either in improving the NASD's performance as a self-regulatory organization or in deterring misconduct in the Nasdaq Stock Market in order to provide for the protection of investors and the maintenance of a fair and competitive trading environment. I observe that, under new leadership, the NASD has undertaken a number of remedial measures in addition to the Order's undertakings. Please also include these in your analysis. Finally, press reports, "Nasdaq Dealers Avoiding Odd 16ths, Study Says," Wall Street Letter (December 22, 1997), indicate that a new study has been forwarded to the SEC purporting to show that Nasdaq market makers are avoiding quoting stock prices in odd sixteenths of a dollar, "renewing the debate over whether market makers collude to pad their profits by keeping bid-ask spreads artificially wide." Please discuss the implications of the study and provide your assessment of its validity and any remedial steps you deem necessary.
The Nasdaq Stock Market is a major stock market and its integrity is a matter of considered national importance. Thank you, accordingly, for your cooperation and attention to this request. I look forward to reviewing your reports.
Sincerely,
JOHN D. DINGELL
RANKING MEMBER
Enclosures
cc: The Honorable Tom Bliley, Chairman
Committee on Commerce
The Honorable Michael Oxley, Chairman
Subcommittee on Finance and Hazardous Materials
The Honorable Thomas J. Manton, Ranking Member
Subcommittee on Finance and Hazardous Materials
Mr. Frank G. Zarb, Chairman, CEO and President
National Association of Securities Dealers, Inc.
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