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June 30, 2001

Buyside Balks at Nasdaq Commissions

By Peter Chapman

Despite collapsed spreads and market makers' pleas, the buyside is in no rush to pay commissions on Nasdaq trades.

"This will take six months to get going with any kind of momentum," said Tom Hearden, head trader at Strong Capital Management in Milwaukee. "It's in its infancy. It has buzz. But the buyside has not widely adopted it yet."

Nasdaq market makers, squeezed by flatter spreads caused by decimal pricing, are asking institutions to consider the radical payment alternative.

Working the Phones

Top institutional brokers are sending letters and working the phones in an attempt to convince their clients that trading on a gross, rather than on a net, or spread basis, will benefit them.

Some trades are executed with market makers on an agency basis, but most still include a sales credit, trading pros note.

Some buyside traders fear they will end up paying more when buying stock or receive less when selling if they authorize their broker to transact as agent. That could happen if the execution occurs at a price no better than the all-in price the trader would pay or receive if transacting on a principal basis. The commission then becomes an additional charge.

Other traders don't approve of the unilateral approach brokers are taking to change the system. Tom Bardong, head trader at Alliance Capital thinks brokers should petition regulators to make the change.

"Doing it in such a fragmented fashion makes it difficult to get a consensus," he said. "Nothing significant is going to happen. Everybody would be better off just asking the regulatory agencies to make the change."