Commentary

Jared Dillian
Traders Magazine Online News

Was it Worth It?

In this piece from 10th Man, author Jared Dillian discusses how the ETF revolution is less about ETFs and more about indexing; about how people have come to view stocks less as stocks and more as blobs of stocks.

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June 30, 2003

Nasdaq Prepares for a Better Market Opening

By Peter Chapman

Nasdaq could soon start the day with a single price opening. Mike Edleson, Nasdaq's chief economist, told attendees at a recent symposium on institutional trading at Baruch College in New York City, that Nasdaq planned to roll out a single price opening "as soon as possible."

The advent of a single price opening would be a dramatic change from the current opening process on Nasdaq. Today, the market opens with the posting of multiple bids and offers in each of the thousands of Nasdaq securities.

The first trade each day in a security sets the opening price. But this price may not reflect the true market for a security. That's because a large chunk of the day's trading is typically conducted at the opening. In recent years, the discrepancy has led to criticism of the Nasdaq opening by both the Securities and Exchange Commission and traders on the buyside.

A single price opening would require market makers to dump all or some of their orders into some form of call auction, say experts. A price would then be derived from the many trades expected to result. Some traders expect the change by year-end. However, one Nasdaq official privately says the change is unlikely until next year. Nasdaq is still in the "early stages" of developing the methodology of a single price opening, the official said.

Traders see merit in a single price opening, but have some reservations. "If you can design the system so it's not susceptible to gamesmanship, then there certainly is no harm in it," said Peter Gebhardt, a senior market maker with Thomas Weisel.