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I may have every particular detail of this wrong, including the exchange, but years ago, maybe as long as 20, there was a successful suit against NASDAQ based on research by academics showing their bid-ask spreads were too wide.

Does anyone recall the suit, the academics who were involved, and maybe where the research appeared ?

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Are you referring to the NASDAQ price-fixing scandal of the mid 1990's? – chrisaycock Oct 25 '12 at 13:50

Are you after the famous paper from Christie and Schultz?

  • Christie,W., Schultz,P., 1994. Why do NASDAQ market makers avoid odd-eighth quotes? Journal of Finance 49,1813–18 40.

From the abstract:

On May 26 and 27, 1994 several national newspapers reported the findings of Christie and Schultz (1994) who cannot reject the hypothesis that market makers of active NASDAQ stocks implicitly colluded to maintain spreads of at least $0.25 by avoiding odd-eighth quotes. On May 27, dealers in Amgen, Cisco Systems, and Microsoft sharply increased their use of odd-eighth quotes, and mean inside and effective spreads fell nearly 50 percent. This pattern was repeated for Apple Computer the following trading day. Using individual dealer quotes for Apple and Microsoft, we find that virtually all dealers moved in unison to adopt odd-eighth quotes.

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