Nasdaq plan aims to improve investors' prices Naqcess would register orders on all screens

September 26, 1995|By NEW YORK TIMES NEWS SERVICE

NEW YORK -- The Nasdaq stock market formally proposed a plan yesterday that would make it easier for individual investors to trade at better prices than they now get.

The proposal, called Naqcess, would make it possible for the first time for an individual to reduce the spread between bid and asked prices that is shown on the nearly 300,000 terminals around the world that carry Nasdaq data.

The proposal does not go as far as one that the Securities and Exchange Commission plans to propose later this week. And one part of the Nasdaq plan makes it easier for market makers to back away from quotes when the market moves against them. That will hurt traders who have profited from slow-moving market makers and may create problems as the SEC decides whether to approve it.

Joseph R. Hardiman, the president of Nasdaq, called the proposal "a major step forward in providing price improvement for individual investors."

The proposal is a revision of one offered with much fanfare last spring that ran into considerable criticism from all sides. The changes are modest; the principal one is that an order entered into the new system will be reflected on all Nasdaq screens.

Another change is that the system will take orders only for 1,000 shares or less for most stocks, whereas the previous proposal was to take orders for up to 3,000 shares. But the basic structure still stands.

It appears that some in Nasdaq were opposed to the plan, feeling that it went too far to address public criticisms. Richard G. Ketchum, Nasdaq's chief operating officer, said the proposal was approved on a "nearly unanimous" vote of the Nasdaq board.

The Nasdaq market is a dealer market in which investors normally trade only with brokers called market makers rather than directly with other investors. Traditionally, investors trade only on terms the brokers set. That means investors buy shares at the higher ask price and sell them at the lower bid price.

The Naqcess system breaks that down to some extent.

Under the new system, an investor who places a limit order -- an order specifying the price at which the investor is willing to trade -- can require that the order be entered into the Naqcess system. If the price being offered is superior to any other order in the system, it would be displayed on all Nasdaq terminals.

For example, if the Nasdaq market showed a bid of $20 for a stock, and an asked price of $20.25, an investor could put in a limit order to sell at $20.125. That would narrow the spread in the stock to $20 to $20.125.

It is probable, but not certain, that the order will be executed, assuming the market does not move. So long as the price remains on the screen, no trades could be executed at $20.25 or higher.

The lack of certainty regarding execution may provoke some criticism, although Mr. Ketchum pointed out that in some cases limit orders were not executed on other stock markets either. He voiced confidence that in fact most limit orders would be executed.

Such a system would probably result in narrower quote spreads in many stocks, at least during part of each market day. That would help investors, and it might go at least part of the way to dealing with criticisms that spreads in Nasdaq are too wide. The Justice Department is investigating whether those spreads reflect illegal collusion among market makers.

The SEC, officials disclosed last week, will propose this week a wide-ranging rule that goes further in some areas than does the Nasdaq proposal.

It would require, for example, that all limit orders be exposed to the market. This would expose only limit orders entered into it.

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