A framed letter of complaint hangs on the wall of Paul Schultz’s office. It chides him for harboring “a fundamental lack of understanding” of the way financial markets work, and it’s signed by the president of Nasdaq (National Association of Securities Dealers Automated Quotation system), the world’s second largest stock market.
The letter evokes amused pride in Notre Dame’s John W. and Maude Clarke Professor of Finance. It was written in response to an article Schultz wrote in 1994, with another finance professor, that suggested brokers might be overcharging buyers of over-the-counter stocks. In early 1999, the fallout from that article was summarized this way in a story in the financial journal, Barron’s Weekly:
“Who says academics can’t make things happen? The five years since a couple of finance professors began circulating their suspicions that Nasdaq makers were profiting from maintaining artificially wide spreads on customers’ trades have seen no less than a restructuring of the Nasdaq, which is spending $100 million on improved surveillance, a record $1.03 billion settlement of a class-action investor lawsuit with dealers alleged to have overcharged them, and $26.3 million in SEC fines against 28 securities firms.”
Shultz was teaching at Ohio State when he and Vanderbilt’s William Christie wrote their article citing evidence that Nasdaq traders were artificially rigging prices to sweeten sales profits. The Justice Department’s antitrust division quickly launched an investigation; even quicker than that, Schultz’s telephone was ringing with calls from lawyers planning to file suits on behalf of aggrieved investors. Gathered ultimately into one class-action suit, an out-of-court settlement was announced early in 1999. By then, the Justice Department had wrapped up its probe, and sweeping changes in the rules governing share trading were in place.
Since 1998 Schultz has been on the faculty of Notre Dame’s College of Business Administration, where he teaches courses in market microstructure and corporate finance. His current research is focused on day traders, an Internet-inspired phenomenon that sees some investors buying and selling securities frequently throughout the trading day in search of quick profits.
Schultz seldom alludes in the classroom to his role in the legal settlement that has benefitted somewhere between 100,000 and a million investors. But re-entering his office after class, he sometimes glances at the framed letter and indulges in a smile.