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Banking Law Keyed to Barr, 3rd Ed.
Newton v. Merrill, Lynch, Pierce, Fenner & Smith
Citation:
135 F.3d 266 (1998)Facts
The plaintiffs were investors who purchased and sold securities on the NASDAQ market between November 1992 and November 1994. The defendants were broker-dealers who executed these trades as NASDAQ market makers. Unlike auction markets like the NYSE, NASDAQ is an electronic dealer market where geographically dispersed market makers compete to buy and sell securities. During the class period, the NASD computer system displayed the National Best Bid and Offer (NBBO) for each security. The plaintiffs alleged that technological advances had made it feasible for defendants to execute orders at prices better than the NBBO through private trading services like SelectNet and Instinet. According to plaintiffs, the defendants knew better prices were often available but executed plaintiffs’ orders at the NBBO price while simultaneously trading at more favorable prices for their own accounts. Plaintiffs also claimed defendants failed to “cross” in-house orders or match customer orders with in-house limit orders when feasible, which would have provided better prices than the NBBO.
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