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Spoofing, Surveillance and Supervision

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December 1, 2001

MGM Trio Plan Agency Trading

By Peter Chapman

Three big investment banks will soon officially begin trading Nasdaq shares on an agency basis, industry sources told Traders Magazine.

However, two of the firms, Morgan Stanley and Goldman Sachs, deny they have a timetable. The third, Merrill Lynch, declined to comment.

Still, sources say the trio plan to allow institutional clients, if they choose to do so, to pay commissions by yearend on their Nasdaq executions.

Some institutional desks are already paying commissions for Nasdaq executions, but the practice is not yet widespread. Merrill, in fact, has been offering agency trades on this basis for about a year.

The three banks had reportedly planned to inaugurate the service on Nov. 1, but postponed because the events of Sept. 11 forced Merrill to flee its downtown New York headquarters. (It is possible that the service could be again delayed but sources suggest that is not likely.)

Despite the rumors, roadblocks exist to trading Nasdaq shares on an agency basis. For one thing, not all buyside traders are convinced a voluntary premise is workable.

"I don't think it serves any purpose for half the buyside to trade agency and the other half to trade on a net basis," said Dave Brooks, head trader at Boston Company Asset Management. "You'll still have multiple [price] prints and won't achieve transparency in the marketplace."

Jeff Albright, head trader at Waddell & Reed, agrees. "If you have two clients for the same trade, one trades agency and the other, net, how will you print each client?" he asked. "It has to be all or none."