Report on Nasdaq urges change, but not overhaul

September 16, 1995|By New York Times News Service

A long-awaited report on the Nasdaq stock market, the nation's fastest-growing equity market, will call for changes in the market's governance and supervisory mechanisms, but will not call for a major supervisory overhaul, according to people familiar with the new study.

They said the report by former Sen. Warren B. Rudman will recommend increased public representation on the boards of that stock market and its parent, the National Association of Securities Dealers, as well as a significant boost in the market's enforcement capabilities.

The report, due to be given to the NASD board Monday and released to the public later in the week, also is expected to discuss the relationship between the NASD and the Nasdaq market, which the association both manages and oversees, a potential conflict of interest that galls many of the market's critics.

But the Rudman report is expected to shy away from recommending a complete overhaul of that controversial relationship.

The NASD has come under increasing criticism in the last two years about whether the way securities are traded and priced is fair to investors. This criticism has lead to an investigation of the exchange's practices by both the Justice Department and the Securities and Exchange Commission.

Mr. Rudman's report is part of a NASD effort to be seen as addressing its problems before any potential government intervention.

Hired by the NASD, he and a team of six other financial and economic experts has for the past 10 months conducted interviews and research to pull the report together.

Arthur Levitt, the chairman of the Securities & Exchange Commission, recommended him to the NASD board.

"I get a sense that what they're really going to do is talk about the governance of the place," said George J. Benston, a professor of finance at Emory University, who studies the Nasdaq market.

But the new report is expected to avoid some thorny issues that face the fast-growing market. "I think they're avoiding the price-fixing issue," Mr. Benston added, alluding to allegations, denied by the market and the NASD, that Nasdaq dealers collude to fix prices.

There is significant pressure on the Nasdaq market and its self-regulated parent, the NASD, to be responsive to the Rudman committee report, and it is likely that many of its recommendations will be implemented quickly. The SEC and the Justice Department are currently conducting their own investigations of the Nasdaq market, particularly because of the late-reporting habits of many market participants, and concern about alleged price-fixing.

The Rudman report is therefore just the first shoe to drop, and it is likely that the NASD and the Nasdaq market will try to act quickly on it to deflect any expected criticisms from the SEC and the Justice Department, particularly in the areas of enforcement and regulation.

The Nasdaq has recently moved to strengthen enforcement, hiring as many as a dozen extra people in this area since the beginning of the year, according to one market consultant.

The Nasdaq market, where about 5,000 companies quote their shares, has grown very rapidly in recent years, and during August had an average daily volume of 372.8 million shares, a 26.3 percent increase on its 1994 average daily volume of 295.1 million shares.

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