SEC review of Nasdaq launched

November 15, 1994|By Los Angeles Times

NEW YORK -- The Securities and Exchange Commission said yesterday that it is launching an extraordinary top-to-bottom review of the Nasdaq stock market, looking into allegations that its trading practices harm small investors and violate federal securities rules.

Separately, Nasdaq's parent, the Washington-based National Association of Securities Dealers, announced that it will form its own "select committee" of respected securities industry figures to conduct a wide-ranging reassessment of Nasdaq's operations.

SEC officials said the federal agency's review is the first full-scale investigation of an entire major stock market's operation since an inquiry into the American Stock Exchange in the 1960s.

The steps follow disclosure last month of a Justice Department antitrust investigation of possible price fixing on Nasdaq and the publication of a series of stories by the Los Angeles Times that examined alleged unfair practices in the nation's busiest stock market.

In recent months, investors' lawyers also have filed numerous class-action lawsuits alleging improprieties by Nasdaq market makers, the 510 dealer-firms -- linked together by a central computer system -- that stand ready to buy or sell specified Nasdaq stocks at publicly quoted prices.

In a short written statement, the SEC said it "is undertaking a review of the operation of the Nasdaq Stock Market and whether existing trading practices are fully consistent with SEC and National Assn. of Securities Dealers Inc. rules."

The SEC usually does not publicly announce investigations, and the statement did not elaborate on the specific areas on which the inquiry will focus.

NASD President and Chief Executive Joseph R. Hardiman said in a statement of his own that the NASD is consulting with the SEC and will announce the members of its select committee after a meeting Friday of the organization's board of governors.

The purpose of the committee is to "permit an independent review of the operation and regulatory oversight of Nasdaq," he said.

In interviews in recent months, Mr. Hardiman has strongly denied any deliberate wrongdoing by Nasdaq or the dealers.

The NASD contends that Nasdaq's system of competing market makers offers all investors advantages over traditional stock exchanges, such as the New York Stock Exchange, where a single firm handles all trading-floor transactions in a particular stock.

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