[IWAR] MARKETS new NASDAQ system proposed

From: Michael Wilson (MWILSON/0005514706at_private)
Date: Tue Dec 23 1997 - 19:34:02 PST

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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
       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
       By MARCY GORDON, AP Business Writer

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