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Nasdaq May Set Up Electronic Auction Market for
NYSE Stocks, People Say
By Neil Roland
Nasdaq May Set Up Electronic Auction Market for NYSE
Stocks
Washington, Dec. 8 (Bloomberg) -- The Nasdaq Stock Market,
in a bid to lure trades from its main rival, is
considering a
plan to team with Wall Street's largest brokerages in an
electronic auction market for New York Stock
Exchange-listed
stocks, people knowledgeable about the plan said.
The proposal, to be reviewed tomorrow by the board of the
National Association of Securities Dealers, seeks to
capitalize
on the NYSE's move last week to permit all its stocks to be
traded in other markets.
The NASD plan provides for an alliance between Nasdaq and
Primex Trading, a new company that expects to offer
anonymous
electronic trades in both NYSE- and Nasdaq-listed
stocks starting
in mid-2000, the four people said.
Primex is owned by Merrill Lynch & Co., Goldman Sachs Group
Inc., Morgan Stanley Dean Witter & Co., Citigroup
Inc.'s Salomon
Smith Barney, and Bernard L. Madoff Investment
Securities. Any
Nasdaq agreement with Primex probably wouldn't go into
effect
until late next year at the earliest, the people said.
``This could be a powerful competitor to the New York Stock
Exchange,'' said David Whitcomb, president of Automated
Trading
Desk, a Charleston, South Carolina trading firm. ``They
could
take a lot of the NYSE's business.''
Spokesmen for Nasdaq and the five Primex firms declined
comment.
The NASD, which owns Nasdaq, the American Stock
Exchange and
NASD Regulation, is trying to expand trading
opportunities for
member firms now that barriers between securities
markets are
crumbling.
The NYSE, under pressure from Securities and Exchange
Commission
Chairman Arthur Levitt, last week proposed scrapping a
rule that
prohibits member firms from trading many of the largest
Big Board
stocks off the floor of an exchange. The SEC is expected to
approve the elimination of NYSE Rule 390 early next
year, which
could result in trading of many more NYSE stocks on
electronic
trading networks and Nasdaq.
The NASD, led by chairman Frank Zarb, also is trying to
improve its ability to compete with electronic trading
networks
such as Datek Online Holdings Corp's Island. The NASD board
tomorrow may vote to approve a conversion of Nasdaq to
a for-
profit company, a proposal that has run into opposition
from many
small brokerages.
An NASD-Primex agreement may spur the NYSE to retaliate by
trying to team with another electronic trading network
to trade
Nasdaq stocks, a legal expert said.
``The competition will not work one way,'' Columbia
University law professor John Coffee said.
It isn't clear if an NASD agreement would preclude Primex,
which has been talking to different stock markets, to
also form
an alliance with the NYSE. An NYSE spokesman declined
comment, as
did Primex executives.
Primex's success in attracting buyers and sellers isn't
assured, despite the heft of its owners. A total of nine
electronic trading communications, including Reuters
Group Plc's
Instinet Corp. and Datek Online Holdings Corp.'s
Island, already
offer trading in mostly Nasdaq stocks. They
automatically match
buyers and sellers.
Primex is trying to carve out a different niche from these
networks by offering opportunity for ``price
improvement'' --
giving investors better than the best available buying
or selling
price -- just as the NYSE already does. For example, if an
investor sees a stock offered for sale at $20.10 and
places an
order to buy, a broker could step forward with an offer
to sell
at $20.05, thus improving on the best sale price on
display.
One uncertainty involving Primex is how it would dovetail
with other trading changes sweeping Nasdaq and other
markets. The
securities markets are planning to phase in decimal stock
increments to replace fractions, starting next July.
Nasdaq also
has an often-postponed agreement with OptiMark
Technologies Inc.
to incorporate its trading system sometime next year.
The OptiMark system lets brokers use a computer to express
preferences for trades of Nasdaq stocks at different
prices and
quantities. It's intended to allow institutional
investors trade
large blocks of stock anonymously. Optimark, in which
Merrill
Lynch and Goldman Sachs also have invested, started
operations on
the Pacific Exchange earlier this year but hasn't been
trading
nearly as many shares as it had hoped.
The NYSE is already moving to compete with electronic
trading networks. NYSE Chairman Richard Grasso said
last month
that the Big Board would let investors trade orders of
1,000
shares or less electronically among themselves. This
proposal
would allow these orders to be executed automatically
without the
intervention of specialists on NYSE's auction market.
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