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December 1, 2001

Limit Order Rule Modified

By Gregory Bresiger

Market makers, prevented from stepping in front of customer orders on the OTC Bulletin Board, have seen that restriction eased under a rule modificaton introduced by the SEC.

However, the change in the limit order rule, which will stay in place on a trial basis until February, has received a mixed reception. Under the change, if a customer order price is outside the bid-offer spread in a stock, market makers can price improve' and step ahead of the order.

Several market makers think it is a redundant measure in a market like the Bulletin Board. The market has a plethora of illiquid stocks, they note. Other pros said the change could help market makers. On the surface, the modification would seem to help. Nasdaq defends the change, saying it is unreasonable to expect traders on the Bulletin Board to offer price improvement of a penny before stepping ahead of an order.