Nasdaq New Rules
Monday
.c The Associated Press
By ROB WELLS
AP Business Writer
WASHINGTON (AP) -- The biggest change in the Nasdaq stock
market's 26-year history begins Monday with the introduction of new
trading rules that could save investors millions of dollars.
If the new Securities and Exchange Commission rules work as
intended, customers can place orders for Nasdaq stocks at prices
competitive to the buy and sell prices posted by professional
traders -- potentially lowering trading costs.
The rules aim to prevent a form of collusion among Nasdaq
dealers, identified in Justice Department and SEC studies last
year, that kept stock price quotes artificially wide to keep
trading profits fat. The new rules could reduce traders' profits by
$3 billion this year, an industry analyst told Barron's magazine.
``Customers will have the ability to establish the best
prices,'' said Bill Broka, a Nasdaq senior vice president.
``Clearly, what this means for investors is they will have
increased economic clout in the marketplace.''
The SEC's new order-handling rules allow investors to distribute
limit orders, with which customers tell brokers at what price to
buy or sell, to the entire Nasdaq market. In the past, Nasdaq
dealers weren't required to display a customer's limit order to
other dealers.
The SEC hopes customer limit orders will inject new competition
into the market that could narrow the ``spread,'' or the gap
between the best offer to buy and best offer to sell a particular
stock.
For example, if an investor can buy a stock at the ``asked''
price of $18 a share and sell it at the ``bid'' price of $17.50 a
share, the spread is 50 cents. If the customer puts in a limit
order to buy the shares at $17.75 a share, the gap between the buy
and sell price would shrink to 25 cents.
These trading rules will be phased in over the next eight
months, with Nasdaq's 50 most active stocks the first to be
covered. Some of the stocks, such as Intel Corp. and Microsoft
Corp., have narrow spreads of about 12.5 cents to 13 cents. The
spread on less frequently traded issues, such as PacificCare Health
Systems Inc.'s class A shares, can be more than $1.
Experts predict the changes will be most dramatic over time in
the lesser traded stocks.
``I think there's going to be a very significant effect on
spreads,'' said George Jennison, head of Nasdaq trading at the
Richmond, Va.-based Wheat First Butcher, a brokerage firm.
The second part of the SEC's trading rules provides public
access to prices quoted on private computerized trading networks,
which often give professional traders a better deal than prices
quoted on the Nasdaq system.
For some Nasdaq firms, preparations for today's switch-over have
been tremendous. At Herzog, Heine Geduld, a large Nasdaq market
maker based in New York, workers have been reprogramming
computerized trading systems ``seven days a week, around the
clock,'' said E.E. ``Buzzy'' Geduld, the firm's president.
``It's an extremely expensive project for us,'' he said. ``We
had to drop every data processing project at the firm.''
Geduld said the new way of doing business easily constitutes the
biggest change in Nasdaq's history, but he's not sure whether the
market will change as the SEC predicts it will.
``The jury is still out on whether that will work,'' Geduld
said. He's worried that, because of the reduced profits, smaller
Nasdaq stocks may find it harder to gain sponsorship from market
makers. Those are the firms that play a central role in the
computerized market by buying and selling stocks.
At Nasdaq, programmers have been running weekend tests of the
computer system to work out bugs, and exchange executives say the
system is ready.
Other market participants think Nasdaq's computers probably are
ready, but they express some misgivings that something might go
wrong. At a Nasdaq briefing for reporters this month, a computer
error message popped up on a 12-computer screen display as Nasdaq's
Broka explained the intricacies of limit orders.
The 50 stocks under this system:
INTC Intel Corp.
MSFT Microsoft Corp.
CSCO Cisco Systems Inc.
DELL Dell Computer Corp.
USRX U.S. Robotics Corp.
SUNW Sun Microsystems Inc.
COMS 3Com Corp.
ASND Ascend Communications Inc.
ORCL Oracle Corp.
CSCC Cascade Communications Corp.
AMGN Amgen Inc.
HBOC HBO & Co.
Parametric Technology Corp.
QCOM Qualcomm Inc.
SCI Systems Inc.
PacifiCare Health Systems Inc. (class A and B shares)
PHYC PhyCor Inc.
Outback Steakhouse Inc.
APAC TeleServices Inc.
PAY Paychex Inc.
Ross Stores Inc.
RMD Remedy Corp.
DURA Dura Pharmaceuticals Inc.
The Money Stores Inc.
Evergreen Media Corp.
Fifth Third Bancorp
SouthTrust Corp.
Whole Foods Market Inc.
TNCR Tencor Instruments
XIRC Xircom Inc.
Vantive Corp.
Apollo Group Inc.
GTIS GT Interactive Software Corp.
CDW Computer Centers Inc.
TREE Doubletree Corp.
HNC Software Inc.
Arbor Software Corp.
VISX VISX Inc.
Men's Wearhouse Inc.
Dollar Tree Stores Inc.
First Security Corp.
Heartport Inc.
Atlas Air Inc.
Coherent Inc.
Cincinnati Financial Corp.
Nature's Sunshine Products Inc.
USFreightways Corp.
Objective Systems Integrators Inc.
DII Group Inc. |
