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August 31, 2001

Rivarly Turns Nasty Over Execution Study

By Gregory Bresiger

The Big Board-Nasdaq rivalry is becoming even nastier.

Nasdaq's claim of smaller spreads and better executions than on the Big Board was based on a study using flawed methodology, according to NYSE officials, who have just fired the latest volley in the battle of studies.

Nasdaq's study measured spreads and execution standards in a nine-day period of April, say Big Board officials, who have just released their own study on best execution and decimalization.

"Quoted spreads measured in dollars were narrower on the Nasdaq during the period of the study," according to the NYSE, "but this finding is greatly reduced or reversed when the spreads are expressed as a percent of share price, a better price comparison for many purposes."

Effective spreads, NYSE officials contended in their study, are a better measure than quoted spreads. Another reason why the Nasdaq study is skewed, they added, is that the NYSE tends to execute more large trades. NYSE traders are more sensitive than their Nasdaq counterparts to the potential market impact associated with their trades.

"In short," NYSE officials conclude, "while we do not advocate drawing firm conclusions from nine days of data selected from the immediate aftermath of Nasdaq decimalization, the data actually tends to favor the NYSE."

That conclusion was rejected by Nasdaq officials. Mike Edleson, Nasdaq's chief economist, said, "that I would be fired if I tried to put a study together like that."

Traditionally, Nasdaq spreads have been bigger than those on the NYSE, he said. "But the truth is that today our spreads, whether you want to use quoted or effective, are generally better than those on the New York Stock Exchange."