WASHINGTON (AP) _ The Securities and Exchange Commission's case against Nasdaq paints a scary picture for the small investor.

Major Nasdaq dealers harassed or refused to trade with others who tried to offer investors a better price for a stock. Other times, the powerful dealers colluded in what amounted to a form of price fixing.

Dealers delayed reporting major trades when it could hurt their stock holdings. Calling themselves ``friendly competitors,'' dealers swapped trading plans or important company news before the public found out.

``Investors paid too much and received too little ... when they bought and sold many securities on Nasdaq,'' SEC Chairman Arthur Levitt Jr. said. ``The NASD was not blind to these practices in the marketplace. It simply looked the other way.''

The National Association of Securities Dealers Inc. broke federal securities laws and its own rules in failing to enforce the rules on Nasdaq, the nation's second largest stock market, the SEC said Thursday in announcing a settlement.

The NASD wasn't fined and did not admit any wrongdoing, but it was censured by the SEC and agreed to spend $100 million over the next five years to improve market surveillance on Nasdaq. Its annual enforcement budget stands at $120 million.

The SEC case requires the NASD to embark on a series of reforms to enhance independence of its regulators and prevent dealers from engaging in agreements to inflate their profits.

The SEC didn't spell out how much more investors paid due to these arrangements, nor did they identify the firms or traders involved as the investigation continues. But a major class action lawsuit against dealers estimates the figure is in the billions of dollars.

The 18-month investigation, which included hundreds of interviews and more than a million pages of documents, represents the agency's biggest enforcement case against a U.S. stock market. It follows conclusion of a Justice Department price-fixing investigation involving 24 big Nasdaq dealers. That case, settled last month, required new and expensive procedures to prevent traders from colluding to keep prices artificially high.

Nasdaq is home to fast-growing computer and technology companies, such as Microsoft Corp. or Netscape Communications Corp., and by some measures is now the world's second largest stock market behind the New York Stock Exchange. In addition to owning Nasdaq, the NASD is an industry self-regulatory group with broad policing powers over Wall Street's 510,000 brokers and 5,400 firms.

Given the severity of the SEC's allegations, some critics expected the agency to do more than bring an administrative case ordering rule changes or reforms that the NASD said it's already undertaking.

``This particular action isn't going to have a direct effect on investors. Most of what it involves is, in a sense, what the NASD has already implemented,'' said Harvey L. Pitt, a securities lawyer in Washington.

William R. McLucas, the SEC's enforcement director, acknowledged that investors shouldn't ``expect there will be monumental change overnight in a market or in market behavior.'' But the SEC's case _ particularly the surprisingly detailed report documenting market-wide abuses _ was aimed at long-term reforms to strengthen policing.

McLucas defended the decision not to issue a fine, saying: ``The better idea is to write the check and improve the market and improve the system and improve the discipline.''

However, both McLucas and Levitt have praised the NASD for some of its recent changes.

The NASD has moved to separate its market policing duties and hired several seasoned regulators to run it. It has proposed a new trading system to give customer orders a chance at better prices than what exists today.

``We have put in place a tough, experienced, effective enforcement team and our boards have committed the resources we need to have a state of the art enforcement program,'' said Mary Schapiro, president of NASD's new regulatory arm and a former SEC official.

Results of the SEC's investigation contain scathing criticism, accusing the NASD of falling victim to undue influence of large Wall Street firms, selectively enforcing rules and vigorously pursuing conduct by small traders that most irked large firms.

It described several instances where the NASD knew of problems in the market, and either failed to react or did so poorly.

In 1993, the NASD undertook survey of large money managers about Nasdaq, which revealed distrust of Nasdaq dealers. Instead of opening an investigation of misconduct described in the survey, the NASD rapidly increased its marketing budget by nearly $20 million to $43 million by 1994, while its regulatory staff fell slightly in the same period.

``The investigation also disclosed an excessive emphasis on public image that is difficult to reconcile'' with the NASD's role as Nasdaq's main regulator, the SEC said.

Levitt said the intense criticism was necessary to speed reforms of the market. The SEC chief said he was committed to making Nasdaq ``the strongest, most innovative and best-led dealer market in history.''