NASDAQ Settlement Checks Are In the Mail

Settlement lawyers told the Wall Street Journal Friday that checks were scheduled to be mailed “on or about December 23” to some 1,249,500 claimants. That includes both individual and institutional investors who filed claim forms by the cut-off date (December 8, 1999). At the time, investors were told that distributions would be made “by year end 2000.”

The litigation was brought on behalf of investors that traded any of 1,659 specified securities on NASDAQ from May 1, 1989, through July 17, 1996.

Why Ask Why?

The case dates back to a 1994 study, “Why Did NASDAQ Market Makers Stop Avoiding Odd-Eighth Quotes?” by professors William Christie and Paul Schultz, which indicated collusion in fixing “spreads,” the gap between prices at which NASDAQ market makers buy and sell stocks.  The difference for affected securities could be as much as $.125/share during the period in question.

In addition to the antitrust case, a late 1996 settlement with the Securities and Exchange Commission resulted in a number of changes that impacted trading and pricing practices for NASDAQ traders.

Left Overs?

Claim checks will range from just $25 in some cases to more than $11 million – the largest single recovery, by one unidentified institution, according to the WSJ.

Once fees and expenses have been taken out, the total pay out will only amount to about $896,233,301.  Institutional investors should get about $1.65/share, with individuals retrieving about $2.47/share, or $25/claimant, whichever is larger. 

Institutional investors got a smaller proration, in an acknowledgement of the pricing/trading advantage institutional investors generally have.

Still, nearly 85% of the claimants were individual investors, according to the article.

The NASDAQ itself wasn’t accused, and the firms involved settled without admitting or denying wrongdoing.