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April 1, 1998

Levitt Targets Trade Count for Elimination: Move by SEC Chairman Could Bring Relief to Traders Hi

By Jeffrey L. Winograd

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  • Levitt Targets Trade Count for Elimination: Move by SEC Chairman Could Bring Relief to Traders Hi
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Arthur Levitt has suggested he will propose eliminating multiple counting on each Nasdaq trade, to dramatically reduce the transaction fees paid by market makers.

The Securities and Exchange Commission chairman raised the issue at a Senate Appropriations Subcommittee, and said afterwards he will meet Nasdaq officials to discuss how trades are counted.

Levitt's action is controversial. The double and triple counting of each Nasdaq trade has long been cited as giving an inflated account of Nasdaq volume. Unlike trading on the New York Stock Exchange, a huge proportion of Nasdaq trading is principal business, requiring the passage of each trade among two or more trading desks.

Nasdaq, however, made no apologies before now, in part because its reported volume gives it marketing heft, experts say. But the intervention of Levitt, as well as market makers' frustration over a congressional decision to introduce 31(a) transaction fees on Nasdaq, may give Nasdaq second thoughts.

Fund U.S. Treasury

The transaction fees are now charged at a rate of 1/300th of one percent of the value of each Nasdaq sale, and are used to fund the U.S. Treasury, and ultimately to finance the SEC. Market makers complain they are paying an unfair proportion of the fees compared to traders at the Big Board.

Levitt's suggestion could bring them relief.

"There is some question whether Nasdaq double counts fees, which they do, and I think shortly we'll see some adjustment that will reduce the fees," Levitt told the Senate.

Whether Nasdaq would countenance a cut of up to 50 percent in its reported daily volume and the loss of prestige that would likely bring is not clear. But supporting the change could hasten the end of Nasdaq traders' efforts on Capitol Hill to get relief on 31(a) fees, market insiders say.

Publicly, Nasdaq says the current system might be best left untouched. A spokesman for Nasdaq noted that the current structure was approved by the SEC and does what other exchanges do: When capital is risked, volume is counted once.

The current structure "provides investors with maximum transparency, and less reporting may not be in the best interests of investors," NASD spokesman Reid Walker told a reporter.

Privately, however, some Nasdaq brass, caught offguard by Levitt's proposal, may be looking for wriggle room. Indeed, Walker said that the NASD was "always open to discussing the matter [of trade counting] further with the SEC."

At press time, the Security Traders Association, and a coalition that includes the Securities Industry Association, the Chicago Stock Exchange and the Big Board, continued their fight for a relaxation in how 31(a) fees are levied.

Sen. Judd Gregg (R-N.H.), chairman of the Senate Appropriations Subcommittee that has jurisdiction over the SEC's budget, said there is a proposal to reduce 31(a) fees on both listed and Nasdaq trades by $400 million over five years. But he cautioned that "if eliminated, we still need to find additional funds for the SEC and the other people in government who will pick up the fees."

A congressional source said an overall reduction of 30 percent to 50 percent is sought in the estimated fees to be collected.