Dealer Participation on The New York Stock Exchange & Nasdaq
1 May 2002
By Dr. Marcia Kramer Mayer and former NERA Senior Consultant Dr. Fernando Avalos
In this paper, NERA Vice President Dr. Marcia Kramer Mayer and former NERA Senior Consultant Dr. Fernando Avalos examine how damages experts approach the "dealer participation rate," a critical input in determining how aggregate damages in shareholder class action are estimated. In such cases, aggregate damages depend as much on the number of affected shares as on stock price inflation. Unless the court requires claims to be submitted before trial, damages experts must estimate the number of affected shares if they are to opine on the total amount of harm.
Defined as the fraction of total purchases and sales accounted for by dealers transacting as principal, the dealer participation rate matters because dealers (i.e., exchange specialists or Nasdaq market makers) are unlikely to have meaningful damage claims, and thus experts often reduce total volume of claims by this rate when estimating the number of affected shares in a securities lawsuit. The authors explain how such deductions may be calculated for securities listed on both the New York Stock Exchange and the Nasdaq, as well as how to determine the market maker participation rate for the Nasdaq.
