Next on Nasdaq: Lower-Cost Trades For Small Investors

Investors trading stocks on the Nasdaq market should be paying lower transaction costs in the months ahead.

That's the likely result of an antitrust settlement reached last week between the Justice Department and 24 large securities firms active in the Nasdaq market - the electronic trading system that has become the nation's largest stock market, in terms of trading volume.

The government alleged that Nasdaq traders conspired to maintain artificially high spreads between the buy and sell prices on Nasdaq stocks. Traders were also said to have coerced and harassed other traders who tried to limit the spread.

A federal judge must OK the agreement, reached July 17 in US District Court here, following a 60-day comment period.

Fresh competition may also result in a growing role for small investment firms on Nasdaq. The market is now dominated by giant brokerage houses, such as Merrill Lynch, Dean Witter Reynolds, Goldman, Sachs & Co., Smith Barney Inc., and Morgan Stanley & Co. These companies were all part of the settlement, in which they acknowledged no wrongdoing.

End of bad publicity?

The agreement "at least gets the Nasdaq issue out of the way," says a New York brokerage-house analyst who follows securities firms. He says he hopes Nasdaq will now be able to go ahead with plans of its own to introduce new programs to expedite transactions.

Large securities firms may see their profits dip as they fund a new compliance program that includes tapes of conversations by Nasdaq traders. Attorney General Janet Reno said brokerage firms will have to tape about 3.5 percent of traders' phone calls. Now, if suspicious trading patterns emerge, or there are serious complaints of price fixing, federal investigators will be able to look back at the actions of a specific trader.

That bothers some financial experts. "The taping requirements sound a lot like Big Brother watching over us," says one university expert on stock markets.

Nasdaq, by any measurement, is an American financial success story. It is an independent subsidiary of the National Association of Securities Dealers Inc. (NASD), the private regulatory organization for the US securities industry. Long known as the over-the-counter market, dealing in little-known companies, Nasdaq is now the second-largest US market, in terms of the value of listed stocks, having passed the American Stock Exchange. Even the giant New York Stock Exchange cannot be totally sanguine, experts say: Nasdaq's trading volume is far larger than that of the Big Board. Nasdaq rise has been fueled by its wealth of high-tech stocks such as Intel, Microsoft, and Netscape.

Circuit breakers modified

Separately, the Securities and Exchange Commission has approved a slight loosening of the circuit breakers that halt trading on major stock exchanges if the Dow Jones industrial averages drops by 250 points in a day. Now trading would only halt for 30 minutes instead of an hour. The measure has never been used. No changes were made in the 50-point collar, used every day last week, that limits some computerized trading when the Dow moves 50 points.

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