Nasdaq central limit order pool round 2:
Institutional investors that want to protect
their trading strategies from their pension and mutual fund
competitors could place trades anonymously, Campbell said.
An institutional trader who supported the earlier plan also
praised the latest proposal, which he said makes it easier to
price a large bloc of stock that needs to be traded quickly.
''It also benefits the retail investor by giving his order
more opportunity to interact with institutional orders,'' said
Michael Cormack, equity trading manager at American Century
Investments of Kansas City, Missouri, a mutual fund company that
manages $90 billion in assets.
bloomberg.com
Nasdaq Market Forwards New Central Limit-Order Proposal to SEC
Washington, Oct. 5 (Bloomberg) -- The Nasdaq Stock Market
unveiled its latest proposal to centralize trading of customer
orders in response to market fragmentation that has limited
investor access to some of the best possible prices.
The Nasdaq plan, which was forwarded to the Securities and
Exchange Commission last week for approval, would make dealers
list the three best buy and sell quotes for any stock, instead of
just one. Each quote would be accompanied by the total number of
shares ordered in the market at that price.
The display of quotes from Nasdaq dealers and electronic
trading networks is intended to make the deeper market for a
stock visible in one place. Dealers and investors who want to
place a trade now must search for these prices among different
electronic networks, such as Reuters Group Plc's Instinet Corp.
and Datek Online Holdings Corp.'s Island.
''I'm behind this 100 percent,'' said Bernard Madoff, a New
York broker-dealer who heads the Securities Industry
Association's trading committee. ''It would be a user-friendly
system in which the best quotes are on one screen.''
Nasdaq, the second largest U.S. stock market, is trying to
counter the threat to its business posed by the proliferation of
trading networks, which automatically match buyers and sellers
without dealer intervention.
About 30 percent of Nasdaq shares now trade on these nine
networks, some of which have applied to the SEC to become
exchanges. These private networks primarily attract customer
''limit orders'' at specified prices, which are matched with
other such orders in the same system.
Market Links
The proposal comes after Securities and Exchange Commission
Chairman Arthur Levitt last month urged all U.S. markets,
including Nasdaq and the New York Stock Exchange, to consider
linking with each other to provide a national market for limit
orders. ''The more customer orders that interact with one
another, the better the prices will be,'' Levitt said.
The Nasdaq proposal, if approved, could give small investors
access to better prices when they buy or sell shares. It also
could pose a threat to the business of some electronic trading
networks, industry experts said.
Nasdaq's proposal would create ''a central facility that
could act as a magnet for all participants by creating a single
point of entry,'' Nasdaq executive vice president Patrick
Campbell said.
The plan is aimed at exposing limit orders to a broader pool
of orders in an attempt to attract more volume, increase
competition, and drive down spreads between the buying and
selling prices. Institutional investors that want to protect
their trading strategies from their pension and mutual fund
competitors could place trades anonymously, Campbell said.
Refining Plan
Nasdaq officials, including Frank Zarb, chairman of the
National Association of Securities Dealers, which owns Nasdaq,
have been refining their plan in extensive talks with industry
participants. Nasdaq, which lists technology stocks such as
Microsoft Corp., Intel Corp. and Cisco Systems Inc., also has
been trying to position itself for competition with the trading
networks by moving to change itself into a for-profit company and
offer after-hours trading.
Nasdaq wants to link its limit-order proposal with a
companion plan that would consolidate its SelectNet and Small
Order Execution System trading platforms, Campbell said. The
platform combination, which has broad industry support, would let
brokerages and investors trade blocs of at least 1,000 shares
more quickly. Together, the two plans would provide central
display and trading of the limit orders that now produce about 75
percent of Nasdaq's 161 million annual trades.
The SEC is likely to issue the limit-order proposal for
public comment in the next few weeks, Nasdaq officials said. The
SEC will then decide whether to approve the plan. Nasdaq hopes to
introduce the new system in about a year.
Second Attempt
The Nasdaq proposal is its second attempt to create a
central limit-order market. Its 1998 plan sought to set up a
Nasdaq-run limit-order market that would have let brokers bypass
dealers, who risk their capital to match buyers and sellers, in
an attempt to reduce trading costs. The earlier proposal was
stymied by widespread opposition from dealers such as Madoff, who
stood to lose business to Nasdaq.
Madoff said the proposal unveiled today would benefit
brokers and dealers by preserving their role on Nasdaq and
increasing their trading volume.
An institutional trader who supported the earlier plan also
praised the latest proposal, which he said makes it easier to
price a large bloc of stock that needs to be traded quickly.
''It also benefits the retail investor by giving his order
more opportunity to interact with institutional orders,'' said
Michael Cormack, equity trading manager at American Century
Investments of Kansas City, Missouri, a mutual fund company that
manages $90 billion in assets.
Individual investors' orders sometimes languish in an
electronic trading network because there isn't a matching order
in that system, he said.
Competition
Many of the electronic networks were formed in response to
the SEC's 1997 order-handling rules, which successfully sought to
narrow Nasdaq trading spreads by fostering competition and
improving investor access to the best prices. These networks now
handle limit orders on behalf of dealers that don't find it
profitable to do so, and route the best orders for possible
display in Nasdaq's best quote.
The Nasdaq proposal unveiled today could put several trading
networks out of business, said Richard Schenkman, Instinet's
chief operating officer.
''I'd be concerned if my business was just a pipeline for
the marketplace, a kind of rent-a-quote that serves as a
compliance tool,'' he said.
Instinet, the oldest and most successful of the trading
networks, isn't threatened by Nasdaq's proposal because of the
diversity of its business, Schenkman said. |
