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April 30, 1999

Comeback for NASD's Limit-Order Book? Zarb's Comment Revives Hopes, Concerns About Proposal

By William Hoffman

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  • Comeback for NASD's Limit-Order Book? Zarb's Comment Revives Hopes, Concerns About Proposal
  • Page 2

Less than a year after the proposal died in a hail of criticism from market makers and other opponents, National Association of Securities Dealers Chairman Frank Zarb revived with one remark the idea that the NASD create a consolidated limit-order book.

Zarb told a recent gathering of the Independent Broker Dealers Association (IBDA) in New York that he was counting on them to support the proposal, according to published reports. Traders Magazine was unable to confirm the report directly.

Alan Davidson, president of the IBDA, said he heard Zarb's remarks at the gathering.

Whether or not Zarb expressed support for a limit-order book mattered less several weeks later, when the NASD reopened the comment period on the original NASD limit-order proposal.

Some stunned traders saw this as a dilution in the NASD's advancement of the agency-quote proposal.

The Questions

The IBDA gathering was attended by some 75 supporters who listened to Zarb field questions during a dinner hosted by the IBDA at Harry's of Hanover Square, a Wall Street watering hole.

Another attendee, Joseph Mays, a consultant to the board of the IBDA, said he also heard Zarb's support for the limit-order book at the gathering.

"Some person in the room raised the [limit-order book] proposal, and Zarb responded that the NASD was looking at it again," Mays recalled.

Mike Shokouhi, a spokesperson at the NASD, deferred to Davidson's group for confirmation. He did not challenge the accuracy of the report.

Asked just before the NASD reopened comment on the limit-order book, on what has changed since last year to revive the proposal, Shokouhi said, "Nothing I can talk about." Shokouhi added that the New York speech was the only time Zarb has mentioned the idea publicly.

Later, the NASD said the limit-order proposal was reopened for public comment at the behest of the Securities and Exchange Commision. At the same time, the release sought public comment on the NASD's agency-quote proposal.

While some traders were baffled at the unexpected SEC move, others were less taken aback, viewing it as good due diligence. Some remarked that if the OptiMark trading facility is to go live on Nasdaq, a limit-order book would be a necessary component of the operation.

"It is a complicated world, but the fact is we never pulled [the limit-order book]," an NASD official said. "The SEC is basically breathing some life back into it. It is still a very good proposal."

At least one trader expressed skepticism about the veracity of the report.

"I don't see anything productive about building an entire story around a statement Frank may or may not have made," remarked Kenneth Pasternak, president and chief executive of Knight/Trimark Group in Jersey City.

But Davidson believes he heard the NASD chairman correctly. "Frank Zarb doesn't float trial balloons," he said. "I think he's serious and he wants to do the right thing."

"I think it was appropriate for Frank to say that, in view of some of the problems we've been facing," Davidson continued. "I think this is the fairest way to deal with it. And I'm certainly going to support Frank."