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Technology Stocks : Y2K (Year 2000) Stocks: An Investment Discussion -- Ignore unavailable to you. Want to Upgrade?

To: Josef Svejk who wrote (8506)	12/23/1997 9:32:00 PM
From: Jeffrey S. Mitchell	Read Replies (1) \| Respond to of 13949

Off Topic -- Re: Nasdaq Plan Would Centralize Limit Orders By LESLIE EATON NEW YORK -- Investors would have new ways to buy and sell stocks under a plan the National Association of Securities Dealers filed Monday with the Securities and Exchange Commission. Under the proposal, called Next Nasdaq, investors seeking to buy or sell shares at a specific price -- known as a limit order -- could post the offers in a new centralized book run by Nasdaq, where other investors and traders could see them. Investors who use mutual funds would also be affected, because the plan would allow big professional investors like funds to trade electronically with Nasdaq firms, as long as they are sponsored by a brokerage firm. It would also combine Nasdaq's two electronic order systems into one. Opposed by some Wall Street firms, the plan would be the latest in a series of changes that in the last year have swept over Nasdaq, the trading home of many high-technology and small-company stocks. "This is part of a string of enhancements for investors" said Richard Ketchum, chief operating officer of NASD, which runs Nasdaq. Nasdaq is a dealer market, meaning that many brokerage firms quote prices and execute trades; customers usually buy from or sell to a dealer, rather than another investor. Supporters of the system argue that having many participants committing capital makes the market stronger and better for investors. Critics contend that dealers have sometimes put their own interests ahead of investors'. Last year, the Justice Department and the SEC found that brokerage firms trading on Nasdaq had conspired to keep their profits artificially high, at the expense of customers, and that the NASD had turned a blind eye. Many of the dealers are now negotiating to settle a multimillion-dollar class-action lawsuit filed on behalf of investors. The commission forced Nasdaq and the dealers to adopt new ways to handle orders. At the same time, Nasdaq stocks began trading in price increments as small as 6.25 cents, half the level of a year ago. And private electronic trading systems have continued to grow. These changes have cut the profitability of market-making, and have prompted some firms, including Merrill Lynch & Co., to stop making markets in hundreds of stocks. The most controversial Next Nasdaq proposal -- creating a limit-order book -- will make things worse, said Bernard L. Madoff, principal of an investment firm that bears his name and head of the trading committee of the Securities Industry Association. "What is the purpose of building something that will drain business from market makers who are already feeling the pinch?" he asked. Today, dealers who accept limit orders must incorporate them into the prices they quote -- but only if they are close to the market price. If the order "is away from the market, no one sees it," said John Markese, president of the American Association of Individual Investors and a member of the NASD board. He said individuals would do better if their orders got more exposure. Participating in the limit order book is voluntary, but some traders are unhappy at the prospect of having to compete with the same organization that regulates them. "There is something terribly wrong, for a quasi-government agency to become my competitor," said Emanuel E. Geduld, president of Herzog, Heine, Geduld, a big market maker. "They can charge whatever they want; they can undercut competition." Nasdaq officials said they were very concerned with the profitability of the market-makers, and intended to continue cutting the cost to dealers of using Nasdaq systems. - Jeff (from the NY Times business section today)