Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, March 21, 1995 TAG: 9503210155
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
SOURCE: Los Angeles Times
DATELINE: NEW YORK LENGTH: Medium
The core of the plan is a new computerized system for handling small orders. Nasdaq officials said the system, dubbed Aqcess, would increase both the chance that customer ``limit orders'' get filled and the likelihood that customer ``market orders'' get executed at prices better than those quoted by dealers.
(Limit orders are orders to buy or sell at a price the customer specifies. Market orders are ordinary orders to buy or sell at the current market price.)
``The primary beneficiary of this will be the individual investor,'' said Joseph R. Hardiman, president and chief executive of the National Association of Securities Dealers, which operates Nasdaq.
The plan immediately drew strong criticism from some academics, regulators and long-time critics of Nasdaq, who argued that Aqcess would do little to improve rules they say favor dealers over investors. In some instances, critics say, the new plan may be worse than Nasdaq's existing system.
The proposed changes to Nasdaq's rules come amid investigations by the Justice Department's antitrust division and the Securities and Exchange Commission into alleged price collusion among Nasdaq dealers and other suspected illegal practices. Nasdaq in recent weeks had told dealers it believed the SEC would order severe changes unless the market came up with acceptable changes on its own.
In unveiling Aqcess, Hardiman said Nasdaq was scrapping an earlier plan for handling small customer orders, called N-Prove, that the SEC all but vetoed in January on grounds it provided too little protection to small investors.
Meanwhile, lawyers representing investors in a class-action lawsuit against 33 Nasdaq dealers filed papers Monday in federal court in New York alleging that the dealers acted together from 1989 through 1994 to widen spreads in more than 1,600 stocks - far more than had been alleged previously.
(Spreads, essentially dealers' profit margins, are the gap between the ``bid'' price at which a dealer offers to buy a stock and the ``offer'' price at which a dealer is willing to sell.)
Nasdaq, which has asked a judge to dismiss the suit, did not immediately respond to requests for comment on the allegations.
Market officials said the Aqcess proposal is meant to curtail a practice known as ``trading through.'' Now, a dealer is allowed to continue trading with customers at its quoted price, ignoring limit orders held by other dealers that would provide customers with a better price. Limit orders put into the Aqcess system would appear on the computer screens of all Nasdaq dealers. Matching limit orders - one to buy and another to sell at the same price - would be executed immediately by the Aqcess computer.
In addition, market orders of 1,000 shares or less would automatically be executed against any customer limit orders that offered a price better than that offered by dealers. If no such limit orders existed, a market order would be electronically exposed to all Nasdaq dealers for 15 seconds, in case any wanted to offer a price better than the best quoted price.
In the meantime, the order would be guaranteed to get a price no worse than the best quoted price when it first came in.
The plan must be approved by the SEC. One SEC staffer said the outline did not appear to satisfy many of the objections to Nasdaq's earlier proposal. For example, he noted, small investors still would not have access to limit orders placed by big institutions, which often offer the best prices.
by CNB