Nasdaq Reforms Nasdaq Reforms

Over the last twenty five years, Nasdaq has evolved from a sideshow on the Wall Street market, to a major market of its own. The total volume of shares traded on Nasdaq has risen dramatically from its inception in 1973. The number of firms listing their shares on the market has grown by 20% in the past five years, to nearly 5,000. In July of 1995, Nasdaq's total market capitalization surpassed the $1 trillion mark ("Nasdaq wins a hand," 1995). But growth, and Nasdaq's prevailing economic presence, has outstripped what may be provincial attitudes by those on the inside (Norris, 1995). Criticism is two-tiered. Doubt has been cast upon the authenticity of who truly sets policy, and therefore, the pricing competitiveness set in place as it relates to investors ("Nasdaq is controlled by traders, report says," 1995). Recurring efforts to make the Nasdaq market work better for investors and corporations have been blocked, sometimes for years, by NASD's trading committee, which consists of executives of 18 big firms that deal in Nasdaq stocks ("Nasdaq is controlled by...," 1995). The temptation to control certain aspects of Nasdaq policy, in order to keep a certain market advantage, must be great.

For a number of years, the National Association of Securities Dealers (NASD) have been accused of failing to protect those using Nasdaq from trading abuses perpetuated by its members ("Doing the splits," 1995). The Washington-ba

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addition to the recommendations of the Rudman committee, investigations are ongoing by the Securities and Exchange Committee (SEC) and the Justice Departments antitrust division. Under scrutiny is the manner in which NASD disciplines apparent transgressions in trading practices by its 500 Nasdaq dealers. Complaints of "backing away,@ that is, not executing transactions that were within the range of a dealer's publicly quoted prices, are part of those wide ranging investigations (Power, 1995a). Major backing-away sanctions have been rare partly because so many of the backing away complaints have come from maverick, high-speed, Nasdaq traders, so called "SOES bandits," whom dealers accuse of bombarding the market's Small Order Execution System with orders at dealer's expense. The NASD received about 4,800 backing-away complaints in 1994, of which 86% were filled by one SOES trading firm, 6% by another SOES trading firm and 5% by a third firm. Despite the predominance of unsympathetic victims, backing away from quotations is forbidden on the market, as it can lead to investors having to pay a higher price for a stock than expected, or receiving less in the case of a sale. The Justice Department, in legal papers, has disclosed that

Category: Economics - N