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April 1, 1998

Buyside and Sellside Split On NASD Limit Order Book: Majority Would Be Compelled to Use Nasdaq Fi

By Staff Reports

About 70 percent of sell-side traders interviewed in a new survey have expressed opposition to Nasdaq's proposed consolidated, or central, limit-order book. An equal proportion of buy-side or institutional traders, however, are in favor of the book.

If there was to be a Nasdaq-sponsored central limit-order book, approximately two-thirds of all respondents, both buyside and sellside, said they would feel compelled to use it.

That's two of the results of the Security Traders Association's 1998 annual survey of members on hot-button topics, a survey which generated 865 responses, including 182 from STA buy-side members.

STA President John Tognino said the survey will be used to develop policy positions on a wide range of issues.

Circuit Breakers

More than three-quarters of respondents strongly favor the use of circuit breakers to curb trading during rapidly declining markets. Most would prefer to see a circuit-breaker formula based on a percentage relationship between the amount of the decline in the Dow Jones Industrial Average, and its opening-day value formula. Less than 20 percent favor the use of absolute numbers (such as a decline of 250 points). Nearly two-thirds of respondents favor reopening the markets after a trading halt in order to establish closing prices for the day.

An equal number of buy-side and sell-side traders, 66 percent, expressed a preference for setting the minimum trading increments at 5 cents, if quotation prices were to change to decimals from the current use of fractions.

A total of 70 percent of buy-side traders and 87 percent of all others said decimilization should be delayed at least until next year. Of this segment, almost 50 percent from the buyside and 64 from the sellside thought decimilization should be delayed until after 2000.

ECNs

Seventy-four percent of all respondents said electronic communications networks (ECNs) should be regulated as broker dealers or as a separate category of firm; 25 percent of each category felt they should be regulated as exchanges and only a small percentage thought they should have the same status as customers.

About two-thirds of buy-side respondents thought Nasdaq should have a trade-through rule, while a slight majority of others were opposed.

Seventy-two percent of sell-side respondents felt that broker dealers should be able to charge fees similar to ECNs, while 52 of buy-side respondents thought the same.

1998 STA Survey of Members

Should Nasdaq contain a central limit-order

book built and run by the National Association

of Securities Dealers?

Yes % No % Total

Buyside 109 69 50 31 159

Sellside 193 29 463 71 656

Total 302 37 513 63 815

Source: Security Traders Association

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