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Markets settle collusion case

The four main stock options markets, which have ended alleged monopolies, will spend $77-million on policing efforts.

The Justice Department and the Securities and Exchange Commission on Monday agreed to settle accusations of alleged anti-competitive practices in the stock-options business in return for a promise by the four main options markets to spend $77-million on policing their members.

The deal announced Monday comes 13 months after the markets ended the practice that lay at the heart of the government's case _ the assignment of what the government said were monopoly trading rights at each of the four exchanges.

Stock options give investors the right to purchase or sell shares at a certain fixed price at a set future date, enabling the buyers to gamble on a stock's entire gain or loss for that period at a fraction of the price of buying a share.

Until last year, some of the most popular options were limited to members of a single exchange. For example, the firm of Spear, Leeds & Kellogg managed all U.S. trading in options of Dell Computer Corp. from its post on the basement floor of the Philadelphia Stock Exchange. Traders at the rival American, Pacific and Chicago Board Options exchanges were barred from trading in Dell, and Philadelphia traders were in turn barred from popular options traded at the other markets.

While traders defended the practice as a natural result of customers' desire to concentrate their bids in the biggest market for a particular stock, the management of all four exchanges denied collusion. As a condition of the settlement, they did not admit to any wrongdoing.

In the complaint, however, the Justice Department said it had found evidence of collusion among the four markets and attempts to intimidate dissident traders who wanted to handle options restricted to others markets. Citing terms of the settlement, a Justice Department attorney who helped prepare the government's case Monday declined to provide any specific evidence of these acts.

The monopolies effectively ended in August 1999 when the Chicago market began trading in Dell options and the Philadelphia exchange responded by "multiple listing" its rivals' most popular options.

Since then, the Philadelphia exchange and the American Stock Exchange have gained market share at the expense of the Chicago market, while the Pacific's share remains unchanged.