U.S. SEC Quietly Revives NASD Plan for Central Limit-Order Book
bloomberg.com
Zarb pushed the proposal as a way to improve Nasdaq's ability to compete with the New York Stock Exchange and electronic trading networks like Reuters Group Plc's Instinet Corp.
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U.S. SEC Quietly Revives NASD Plan for Central Limit-Order Book
Washington, April 20 (Bloomberg) -- The U.S. Securities and
Exchange Commission has quietly revived a controversial National
Association of Securities Dealers proposal that would create a
central market for customer orders at specified prices.
The original plan, dubbed ''Next Nasdaq,'' was shot down by
SEC Chairman Arthur Levitt last year after the NASD couldn't
secure support from many brokerages that trade on the Nasdaq
Stock Market.
The proposal was championed by NASD Chairman Frank Zarb as a
way to lower trading costs and attract investors to the second
largest U.S. stock market. It drew fire, though, from firms that
said it would put Nasdaq in competition with NASD's member
brokerages.
The SEC issued a terse statement about the plan yesterday,
buried in a notice about another NASD proposal: ''The comment
period on Nasdaq's Limit Order Book Proposal has been reopened,''
the SEC said in its daily digest of announcements.
''Limit orders'' are stock orders typically placed by mutual
fund companies and other institutional investors to buy or sell
stock at designated prices.
SEC officials had no comment today. The public will have
until June 1 to comment on the revived NASD proposal before the
SEC decides whether to adopt it as a rule change.
Zarb's proposal would create a broad market for limit
orders, which now are placed with a particular broker-dealer.
Offers to buy or sell now can interact only with matching orders
from customers of that dealer. Under the proposal, investors
could work through a broker to place orders directly with Nasdaq,
without going through the dealers who now handle all Nasdaq
trades.
The SEC originally had issued the proposal for public
comment in March 1998. Zarb pushed the proposal as a way to
improve Nasdaq's ability to compete with the New York Stock
Exchange and electronic trading networks like Reuters Group Plc's
Instinet Corp.
The SEC, though, quietly let it die when the Securities
Industry Association, a brokerage trade group, strongly opposed
the plan. The request for new public comments signals the SEC is
preparing to reconsider the proposal in the context of the other
NASD plans.
''The reopening of the comment period was done at the
initiative of the SEC,'' Nasdaq spokesman Scott Peterson said.
The SEC also published the limit order proposal April 15 on
its Web site, incorporating it in another NASD proposal that
would consolidate Nasdaq's two main trading platforms, SelectNet
and the Small Order Execution System. A third proposal, issued by
the SEC earlier this month, would create two categories of limit-
order quotes -- one for investors, the other for firms making
proprietary trades from their own accounts.
''Because these proposals are largely alternatives to each
other, market participants should have the chance to formally
comment on the limit-order book proposal in light of the
SOES/SelectNet and agency quote proposals,'' the SEC wrote in its
solicitation of comments.
Although the limit-order proposal was included in a notice
about the SelectNet plan, it is being considered by the SEC as a
separate plan.
The SEC's revival of the proposal caught both the SIA and
mutual fund companies, which supported the original plan, by
surprise.
''I don't imagine this will produce any different results
from last time,'' said Bernard Madoff, a New York broker-dealer
who heads the SIA's trading committee. ''We don't think Nasdaq
should be operating a central limit-order book in competition
with its member firms.''
Madoff also reiterated the SIA's previous criticism that
Zarb's plan would bypass the dealers, also known as market-
makers, that risk their money to create liquidity on Nasdaq.
The NASD proposal had been enthusiastically supported by
mutual fund companies and other institutional investors.
''It would give all investors access to the best possible
orders,'' said Michael Cormack, chief stock trader for mutual
fund company American Century Investment Management in Kansas
City, Missouri. ''It would put Nasdaq at a higher level of
transparency, immediacy and access than the NYSE.''
Limit orders, which are rapidly growing in popularity,
account for about a third of all Nasdaq trades and are
increasingly being placed on electronic networks such as
Instinet.
Zarb responded to Levitt's rebuff of his plan last year by
proposing a couple of scaled-back alternatives now before the
SEC. One would provide two sets of quotes for limit orders.
The other, which has not yet been issued for comment by the SEC,
would let dealers charge additional trading fees for executing
limit orders. |
