Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, October 11, 1995 TAG: 9510110089
SECTION: BUSINESS PAGE: B7 EDITION: METRO
SOURCE: LOS ANGELES TIMES
DATELINE: NEW YORK LENGTH: Medium
In a sign of fundamental change taking place for individual investors in Nasdaq stocks, giant discount brokerage firm Charles Schwab & Co. said Tuesday it was adopting a new system that would automatically seek better prices for customers in the 3,500 Nasdaq stocks in which the firm acts as a dealer.
The computer system is being phased in by Mayer & Schweitzer, a Schwab subsidiary that is one of the largest Nasdaq dealer firms. Schwab also said that Mayer & Schweitzer would end a highly controversial practice known as ``payment for order flow,'' whereby the firm - like many other big Nasdaq dealers - pays brokerage firms to send it customer orders for execution.
Payment for order flow is a way that brokerage firms extract extra profit from customer orders, but has been sharply criticized for all but eliminating competition based on price in the trading of Nasdaq stocks. That's because dealers, assured of getting a steady stream of orders anyway, don't need to compete on price.
Mayer & Schweitzer executes most of Schwab customers' orders for Nasdaq stocks and also executes orders for about 125 other smaller brokerage firms.
Schwab's move was widely viewed by Wall Street as an attempt to do what Nasdaq dealers may soon be forced to do anyway. The Securities and Exchange Commission is considering rule changes that would require dealers to begin seeking better prices for investors in Nasdaq stocks.
SEC Chairman Arthur Levitt lauded Schwab's move, even though in some respects it does not go as far as what the pending SEC rules may require. It was an example of private industry taking ``a very constructive step,'' Levitt said.
by CNB