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New trading system for Nasdaq stocks proposed
Copyright ) 1997 Nando.net
Copyright ) 1997 The Associated Press
WASHINGTON (December 23, 1997 8:30 p.m. EST http://www.nando.net) -- A
securities dealers' group is proposing a new trading system that the
dealers say would improve investors' chances of getting a better buy or
sell price for stocks on the Nasdaq Stock Market.
Not all brokerage firms like the plan, which could diminish the role of
powerful market-makers in Nasdaq stocks.
The National Association of Securities Dealers, which operates the
Nasdaq market, has dubbed the proposal "Next Nasdaq." The group
submitted it for approval to the Securities and Exchange Commission on
Monday.
The proposed system "responds to the demands of investors and (dealers)
for a marketplace that provides for fast and efficient access to the
best prices," the NASD said in its filing to the market watchdog agency.
"The basic intent ... is to provide increased price transparency," NASD
spokesman Reid Walker said Tuesday.
He said the system also would give mutual funds direct electronic access
to trading on Nasdaq provided they were sponsored by a brokerage firm.
A major feature of the system is a new central "file" containing orders
to buy or sell Nasdaq stock at a specific price. The file, which could
be seen by both investors and traders, would provide a neutral,
cost-effective way to find a match for their orders, the NASD said.
When the prices of a buy order and a sell order for a stock matched in
the file, the trades would be executed automatically, without involving
a brokerage firm that is a market-maker in the stock.
The electronic Nasdaq, the nation's second-largest stock market and home
to fast-growing computer and technology companies, is a dealer market.
Investors usually buy stock from or sell it to a market-maker in the
stock, rather than another investor.
The brokerage firms that are Nasdaq dealers have come under scrutiny for
their treatment of investors.
The SEC and the Justice Department last year charged that 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 and delayed
reporting major trades when it could hurt their stock holdings, the
federal authorities said.
About 30 brokerages, including many Wall Street giants, currently are
negotiating a $900 million settlement with investors in a class-action
lawsuit alleging the firms rigged prices on Nasdaq to inflate their
profits. It would be the biggest civil antitrust settlement ever,
according to legal experts.
As a result of its investigation, the SEC ordered Nasdaq and the dealers
to adopt new ways of handling stock orders that, along with other
changes, have reduced market-makers' profits.
SEC spokesman Christopher Ullman said the agency needed to review the
new Nasdaq trading proposal before it could comment.
Margaret Draper, a spokeswoman for the Securities Industry Association,
said the trade group hadn't reviewed the plan yet. But officials of two
Wall Street brokerages said they objected to the part of the proposal
that would create a central order file.
Bernard L. Madoff, head of a New York investment firm bearing his name,
questioned whether Nasdaq "should build a system that is going to be
competing with its market-makers."
Madoff, a former Nasdaq chairman, heads the SIA's trading committee.
Emanuel E. Geduld, president of market-maker Herzog, Heine, Geduld Inc.,
noted that while brokerages' participation in the order file would be
voluntary, they would be competing with NASD -- a self-regulatory
organization for the dealers.
"They're about to become my competitor," he said, contending that would
create an unfair advantage for the NASD, which could undercut brokerage
competitors.
By MARCY GORDON, AP Business Writer
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