The National Association of Securities Dealers may have a tough time convincing traders that its proposed integrated order-delivery and execution platform suits them. But one of the NASD's top officials, Rick Ketchum, is trying very hard.

"We're going to look at a means to pass on the execution-fee income of the book to the market makers themselves," said Ketchum, referring to the voluntary limit-order book and order-delivery system that would replace SOES and SelectNet. "We think the book should be designed in a way that's a benefit to the market makers."

Nasdaq Blueprint

In an interview at the NASD's Washington headquarters, and in follow-up telephone conversations, Ketchum laid out Nasdaq's blueprint for the proposed trading platform, originally dubbed Next Nasdaq, and boldly dismissed suggestions that the NASD is seeking competition with market makers. Aside from the commissions market makers could charge for executions via the limit-order book, Ketchum repeated that there could be profit-sharing arrangements in store.

"We don't want to design this in a way that it is competing against our members," said Ketchum, chief operating officer at the NASD. "[As the facilities processor] we want to pass through the execution-fee income to market makers who are stepping up and providing liquidity in the market." Ketchum did not elaborate, except to say the NASD is "tossing around" several ideas.

The proposed Nasdaq system's greatness, Ketchum continued, is that "investors can control their orders, and at the same time, market makers can have a central and unique place that encourages liquidity in the market. We'll never do anything to jeopardize that. We don't think the book does."

OptiMark

The original interview took on dramatic new life as soon as the NASD announced an agreement in principle between Nasdaq and OptiMark Technologies. The plan aims to integrate OptiMark with Nasdaq's trading platform and planned limit-order book.

Ketchum acknowledged, however, that plans for the limit-order book and the OptiMark plan are not foregone conclusions. "[OptiMark] is not a done deal," he said. "It is an agreement in principle."

Nevertheless, Kethum believed that a large group of NASD members supported the limit-order book, another large group opposed the book, and a third was sitting on the sidelines.

"Our main effort is going to be to get out there and answer their questions," Ketchum said. "We're continuing to look at a variety of questions with respect to our book, and we'll use the notice and comment period as a means to try to respond to legitimate concerns."

A prominent critic of the NASD's plan, Bernard L. Madoff, who chairs the Securities Industry Association's Trading Committee, contends that the current NASD proposal would create a system that competes with market makers.

Under an alternative plan proposed by the SIA Trading Committee, limit orders would come into Nasdaq and then be rerouted to market makers on a rotating basis. Nasdaq's limit-order book would serve as a fail-safe system, and display any limit orders market makers were unwilling to display. Market makers would receive a fee for putting the limit orders in their quotes.

Ketchum said the NASD is continuing talks with the SIA's Trading Committee, and will present the SIA's trading-platform proposal to Nasdaq's Quality of Markets Committee. That may just be a pro-forma move. "It is our judgment that the limit-order book provides the level of benefits to investors that justifies our moving forward," Ketchum said.

Conciliatory

Ketchum struck a conciliatory tone, singling Madoff for praise. Madoff has been "the most effective competitor to the New York Stock Exchange…in the history of listed trading," he said.

"Madoff and his firm are perfect examples of how market makers can provide value-added over a limit-order book, and why they will continue to flourish in this environment," Ketchum added.

The NASD does not envision significant costs for firms if the proposed Nasdaq trading platform is approved by the Securities and Exchange Commission. Current workstations would be used. The limit-order book would be called up as a separate page like any other electronic communications network when it appears on the screen.

"[Market makers] would be able to call it on a separate page, but they'll have to call it to get the whole book," Ketchum said. "That's a key difference in the limit-order book. It would disseminate all the limit orders, not just the top of the book. The order-routing and execution system again should be seamless, and dramatically reduce their exposure and difficulty in handling orders."

The NASD is hoping for final SEC approval by June, and to implement the proposed trading system, perhaps with OptiMark on board, by year's end.

The Securities and Exchange Commission is putting pressure on mutual funds and investment advisers, as well as public companies, to state clearly how they are tackling the Year 2000 computer problem.

At issue are mounting concerns that computers, not adequately programmed, will interpret the standard two-digit year code 00 as Jan. 1, 1900, instead of Jan. 1, 2000, a flaw that could ultimately hurt investors.

The agency did not mince words in a Jan. 12 staff bulletin, stating its case for Year 2000 disclosure. With that bold move, it may now be pointless for Sen. Robert Bennett (R-Utah) to press ahead with legislation he introduced earlier, requiring extensive disclosure of companies' Year 2000 compliance plans

Nevertheless, Bennett, who nicknamed his legislation Crash, quickly seized upon the SEC's bulletin and praised "[SEC] Chairman Arthur Levitt for his leadership and courage in taking this initiative. The information I will receive from reviewing the results of this new bulletin will be very valuable in determining how to proceed with my own legislation."

The SEC bulletin states that for any company that "has not made an assessment of its Year 2000 issues, or has not determined whether it has material Year 2000 issues, the staff believes that disclosure of this known uncertainty is required.

"The determination as to whether a company's Year 2000 issues should be disclosed should be based on whether the Year 2000 issues are material to a company's business, operations or financial condition, without regard to related countervailing circumstances (such as Year 2000 remediation programs or contingency plans)."

The Year 2000 problem is likely to preoccupy Washington as the new millennium draws near. For investors, the impact of massive Year 2000 computer glitches are almost too frightening to contemplate.

"Just suppose a company runs up against a sudden outlay, perhaps a big balloon expenditure in 2000," explained a government official familiar with the problem. "Instead of earning 4 cents per share, for example, the investor could wind up with a 6 cents per share loss. Investors are relying on companies to know what they are doing."

Bennett, chairman of the Senate Financial Services and Technology Subcommittee, held a series of hearings on the subject last year, and in November introduced the Computer Remediation and Shareholder Protection Act.

"The Year 2000 problem lies at the heart of our economy," said Bennett. Investors, he added, deserve to know companies are responding to the Year 2000 challenge.

Bennett's bill would mandate the SEC to amend its disclosure regulations and require companies to disclose a wealth of information about Year 2000 compliance. Specifically, they would have to provide a detailed description of their progress in Year 2000 remediation; a statement of likely litigation costs and liability outlays associated with the defense of possible lawsuits; disclosure of insurance coverage for computer failures and related lawsuits filed by investors; and a breakdown of contingency plans for computer failure.

This is the second time in recent months that an influential Republican senator has attempted, in effect, to legislate a top-level agency's rule-making authority. Sen. Lauch Faircloth (R-N.C.) blunted the Federal Accounting Standard Board's proposed rules on derivatives, prompting a top SEC official to privately complain that Faircloth should have stayed clear of that controversy.

The SEC official believes Bennett's Year 2000 legislation was out of step with reality. "You usually don't have new rules for every topical problem. The revised bulletin simply tries to make clearer what is already on the books," the official said.

Meanwhile, the Security Industry Association's board of directors supports a proposal to declare Friday, Dec. 31, 1999, a trading holiday in order to complete as much year-end processing as possible before 2000 begins.

A ten-member panel, created last year by a U.S. Department of Labor advisory body to review the soft-dollar business, has received mixed reviews.

The panel, set up under the auspices of the 1997 ERISA Advisory Council on Employee Welfare and Pension Benefit Plans, recommended that Labor and the Securities and Exchange Commission make some statutory and regulatory changes.

ERISA, or the Employee Retirement Income Security Act, enacted in 1974, sets minimum standards for private-sector pension plans.

Fees

Specifically, Labor was urged to require plan sponsors to report all fees above $5,000 paid for with directed brokerage. Plan sponsors would also be required to certify that they are complying with the existing requirements of ERISA Technical Release 86-1 in directed-brokerage programs.

Labor was asked to recommend to the SEC that the Section 28(e) definition of research be changed, and that it prepare a list of which brokerage and research services are acceptable purchases with soft dollars. Investment managers would be required to provide clients with full disclosure of all trades for each client involving soft dollars, and the benefits investment managers receive from those rebates. They would also be required to detail their policies involving soft dollars.

In addition, disclosure of external research provided to investment managers would be required.

Howard Schwartz, chairman and chief executive of New York-based Lynch, Jones & Ryan, an institutional brokerage firm, said he was "very pleased that the soft-dollar and commission-recapture business which [Labor] has said fosters brokerage-industry competition and ultimately benefits individual pension-plan investors is moving toward self regulation."

The report is "very much in line" with the Securities Industry Association's new best-practices guidelines for soft dollars and other commission arrangements, added Schwartz, who is chairman of the SIA's Soft-Dollar Committee. Schwartz testified before the Labor panel, representing the SIA.

But another industry official, requesting anonymity, was not impressed with the soft-dollar report. "It is unworkable and not well thought out. I don't believe the SEC engages in substantive-type regulation. How do you determine whether Bloomberg is an acceptable research product and fails the test?," asked the official. "People were expecting the production of a credible report, but it is too vague, too general."

Main Concern

The panel's main concern was whether plan fiduciaries have sufficient guidance to properly administer their pension plans in compliance with ERISA's fiduciary requirements. The panel was given a mandate to study the need for regulatory changes or additional disclosure to pension-plan sponsors and fiduciaries on soft-dollar and directed-brokerage practices.

One soft-dollar expert thinks the panel's recommendation could have a far-reaching impact. "If they [the recommendations] are carried out, they will have some significant impact on business," said Lee Pickard, a Washington-based attorney and counsel to The Alliance in Support of Independent Research. A paper written by Pickard, "The Provisions of Investment Services by Broker-Dealers: A Guide to Soft-Dollar Practices," was submitted to the panel for review.

The Association for Investment Management and Research (AIMR), a Charlottesville, Va.-based non-profit trade group, has released a proposed set of soft-dollar standards for its buy-side members.

The standards, developed by a blue-ribbon task force of industry leaders convened by the trade group, are open to public comment until Feb. 28.

Understanding

These standards include the creation of a common understanding of soft-dollar issues by providing definitions of major terms; and requirements that the content of research purchased with client brokerage directly assist an investment manager in his decision-making processing, and not in the management of the firm.

Also included in the standards are a clarification of an investment manager's responsibility to justify the use of client knowledge to pay for a portion of mixed-use products.

Disclose

The standards require AIMR members to disclose certain information with regard to soft dollar practices; uniform record keeping; and clarification of an investment manager's real and fiduciary responsibilities to his client, including the client-directed brokerage area.

These responsibilities cover the client-directed brokerage area.

Under prodding by market makers, the National Association of Securities Dealers is proposing to push back its phase-in of a system designed to electronically capture more than two dozen trade details.

The first component of the Order Audit Trail System (OATS), the direct entry and capture of trade information, was originally to be implemented this August. Non-electronic procedures were to be covered starting Jan. 1, 1999, followed by all other orders on Jan. 31, 2000.

Under an amended proposal filed with the Securities and Exchange Commission, the NASD wants to push back the first phase to February 1999, the second phase to August 1999 and the final phase to July 31, 2000.

The original schedule was criticized by market makers because they said it strained their technology resources.

In addition, adopting the OATS requirements, mandated by the SEC, was making life difficult for traders coping with other major changes, such as the order handling rules.

SIA

As previously reported, the Securities Industry Association's OATS Ad Hoc Committee complained that more time was required to comply with the workload involving OATS.

"A technological undertaking of this kind requires more time [to program and to test]," stated the committee chairman, Bernard L. Madoff, in a letter to the SEC.

The SIA committee had warned that the original schedule put an unfair burden on small and medium-sized Nasdaq trading desks that were unlikely to have the order flow to run in-house audit-trail systems.

Their only option was to use service bureaus and their clearing firms, the committee stressed. Indeed, the real winners would be clearing firms that offer "one-stop shopping [for their correspondents]," the SIA committee maintained.

The SEC is expected to approve the NASD's revised OATS plan, according to industry sources.

NASD Regulation has come down firmly on member firms on Year 2000 compliance. The regulatory subsidiary of the National Association of Securities Dealers has demanded that members report on their progress in making their computer systems compliant.

Mary Shapiro, president of NASD Regulation, said in a prepared statement that it is essential that broker dealers' computer systems continue to operate successfully after Dec. 31, 1999.

"It is imperative that firms aggressively take on the Year 2000 challenge, and that the automated systems they rely on to meet their regulatory, market-participant and investor-protection obligations be Year 2000-compliant," she said.

NASD Regulation's request was announced in a so-called NASD Special Notice to Members. The notice stated that it is the responsibility of members to analyze the readiness of their own automated systems.

How can market makers remain competitive in a hostile trading environment?

They can capture the value of processing customer order flow and charge for the unique aspects of their liquidity services. A good place to start is with the quotation and last-sale information-value of order flow.

Historically, market makers relied exclusively on the bid-and-offer spread to cover the cost of all services they provided to retail brokers.

These services included leased communication lines to clients, computers and software, correspondent fees paid to brokers, publication of quotations, order execution and trade processing, inventory risk and compliance.

Times have changed, of course. The Securities and Exchange Commission-approved order handling rules have essentially eliminated the ability of market makers to capture the spread-revenue on limit orders.

These rules give priority preference to limit-order quotes over pre-existing market-maker quotes, requiring the inclusion of limit-order prices in the National Best Bid and Offer. Consequently, the rules have narrowed market-quoted spreads by about 25 percent.

Regulation, in effect, has forced an unbundling of market-maker revenues. Through a matrix of rules, the SEC is actually keeping market-maker spreads on market orders at a level not exceeding the cost of providing the liquidity services of a limit-order book. Unfortunately, these limit orders cover none of the market makers' regulatory costs.

In contrast, market-maker regulations, such as mandatory SOES and fixed minimum quote sizes, are still in place, forcing market makers to keep extra, costly liquidity services bundled with their quotations. A market-maker quotation is now worth more than an incoming customer limit-order quote, yet the market maker cannot provide these liquidity services exclusively to customers. A competitor, for instance, could hit the market-maker's bid via SOES.

Market makers initially responded to the order handling rules by reducing expenses, specifically eliminating cash payments to retail brokers for unprofitable limit-order flow. Of course, this shifted a significant part of the immediate negative revenue effects of the rules to retail brokers and their customers. Still, market makers are executing limit orders at a loss.

Now they must find new ways to remain competitive. Last-sale information-value of order flow is worth examining.

To begin with, National Market System (NMS) facilities have been allowed to evolve in a manner that requires information-generating enhancements such as last-sale reporting on Nasdaq stocks to increase participants' operating costs. The value of the information is captured by the self-regulatory organizations (SRO) through exclusive management of the central-information processor. Nasdaq is an example of an exclusive central-information processor.

The Chicago Stock Exchange (CHX), as an SRO participant in the unlisted trading plan for Nasdaq stocks, is able to share in the huge subscriber-fee revenues generated by the National Association of Securities Dealers from the sale of last-sale and quotation-price data. In 1996, NASD market-data and subscriber-fee revenues aggregated $222 million.

Market makers and electronic communications networks (ECN) should have as much interest as the CHX in capturing the market-data value of their order flow. After all, they are the producers of the quotation and last-sale information that is being sold.

Therefore, it would only be fair to reconfigure activities to capture an equivalent proportion of the market-data revenues on the same basis as the CHX. As I previously stated in Traders Magazine, the current arrangement for sharing market data subscriber-fee revenues among SROs (exchanges and the NASD) is unfair, placing market makers and ECNs that are not SROs at a competitive disadvantage. It discriminates against small-investor clients, who unlike institutional investors, are dependent upon the ability of retail brokers, market makers and ECNs to achieve the revenue and cost efficiencies derived from the aggregation of small orders into a large flow.

Such discrimination appears to violate the spirit of the NMS 1975 Amendments to the Securities Exchange Act of 1934. Congress was explicit regarding its intention that the SEC apply rigorous utility-type regulation to insure the competitive neutrality of the NMS facilities characterized by exclusive SRO processor control. Through regulatory oversight, the NMS plans have allowed the NASD to retain the market-maker share of subscriber-fee revenues for both Nasdaq and New York Stock Exchange-listed stocks.

Similarly, the discriminatory impacts of subscriber fees and sharing deficiencies on individual investors, investing directly, have been overlooked.

Clearly, the costs of the central processor need to be covered. But subscriber-fee revenues, not required for the receipt and redissemination of the information to vendors, should be apportioned among the generators of the information in relation to their contribution to the value of the information stream. A method is required for non-SRO trade-execution centers to capture their proportionate share of market-data revenues. For one thing, the SEC could require changes in NMS plans that enable non-SRO quotation and last-sale reporting centers to participate on the revenue-sharing side. For another, market makers could explore ways to route their quotation and last-sale information through an SRO that agrees to share revenues, or is set up to accomplish that objective.

Market makers and ECNs owe it to themselves and their clients to capture that value. With only 50 market makers and ECNs accounting for almost 95 percent of Nasdaq and third-market transactions, this should not be an insurmountable task.

Gene L. Finn served as chief economist for the SEC and the NASD. He is currently an outside director at Ameritrade Holding Corp. and Roundtable Partners.

Dealers will certainly be the big winners if Nasdaq's proposed limit-order facility is approved. They would regain priority over customer limit orders and establish a cheaper alternative to Instinet or Bloomberg Tradebook.

Institutional limit-order traders, however, would have a disincentive to use the system, and retail limit-order traders would find that many of their orders would go unfilled unless the market moves against them.

The limit-order facility, the centerpiece of a new integrated order-delivery and execution system, proposed and filed for approval with the Securities and Exchange Commission by the National Association of Securities Dealers, would create a central location where limit orders could be stored and prioritized by price and time. (The system was originally dubbed Next Nasdaq).

Like Instinet, the identity of the trader would not be revealed in the limit-order facility until the trade is executed. Institutions don't want to trade through dealers for fear of being front-run. On the other hand, dealers don't want their identities revealed until they have the chance to unwind positions they have taken.

At the moment, the main users of Instinet are Nasdaq dealers seeking anonymity they cannot obtain elsewhere. Last fall, another dealer market, the London Stock Exchange, instituted a limit-order facility. The evidence thus far indicates that the majority of the volume in that system is generated by dealers who have switched from other dealer-messaging systems.

The same should be more than true about the new Nasdaq facility. While dealers would find the new Nasdaq system a cheaper alternative to Instinet, institutions would probably remain on Instinet because of the Nasdaq system's live-quote rule.

That rule means that orders placed on the new system can't be canceled in the ten seconds following the order's entry. This would act as an effective deterrent to institutional usage of the system. (Note that market-makers' quotes on the current Nasdaq system are not subject to the ten-second rule.)

What about retail limit orders? Nasdaq is a fragmented market without system-wide priority rules. While a dealer cannot trade ahead of a customer limit order he or she holds, the dealer is free nonetheless to trade ahead of customer limit orders held by other dealers or electronic communications networks. Plans for the new Nasdaq facility call for price and time priority inside the facility. However, that is only envisaged for non-directed orders. The market practices of payment for order flow, internalization and preferencing would guarantee that little, if any, order flow would be non-directed. Therefore, the system-wide priority rules will rarely be invoked.

Market participants could direct orders to the new Nasdaq facility or to another dealer. In this case, dealers' best-execution obligations would require that they obtain the best price, not the first best price.

A dealer could direct his order to another dealer offering the same price as the new Nasdaq facility, and his customer would be no worse off than if the order was executed against limit orders in the new facility. Hence, given the practice of payment for order flow, there would be no incentive for market orders to be directed to Nasdaq's limit-order facility.

In contrast, the New York Stock Exchange and the American Stock Exchange provide sufficient incentives for a large amount of market orders to be directed to them for execution against their limit-order books.

Although brokers can direct market orders to one of the regional exchanges or to Nasdaq (in payment-for-order-flow or internalization arrangements), many do not direct orders this way. Price improvement is the reason the NYSE and the AMEX continue to control the lion's share of trading in their listed stocks.

Studies have shown that more than 25 percent of the orders sent to the NYSE execute inside the current quote. Brokers like to report price improvement to their customers, so they have an incentive to direct market orders to the national exchanges. This provides the flow of market orders necessary to make the NYSE and the AMEX limit-order books successful. (Regional exchanges provide some opportunity for price improvement, though a far greater opportunity exists on national exchanges).

Without system-wide time-priority rules and the chance for price improvement, there is no incentive to send Nasdaq market orders to the limit-order facility. And without the flow of market orders, Nasdaq retail limit-order traders quoting at the same price as dealers will see their orders go unexecuted. That is, unless the market moves against them, in which case dealers will move their quotes and limit-order traders will see their orders executed at the worst possible times.

This provides a disincentive for retail traders to submit limit orders. Without the flow of market orders to interact with, the proposed Nasdaq limit-order facility will fail.

At press time, Nasdaq announced an agreement in principal with OptiMark Technologies to allow access to OptiMark from Nasdaq on a commission basis. The preliminary plans are to allow Nasdaq's limit-order facility to take part in OptiMark matches.

Given the wide spreads on many Nasdaq stocks, it is highly probable that matches will typically occur inside the spread. Therefore, limit-order traders quoting at the same prices as dealers will be no better off under the agreement.

However, the agreement with OptiMark clearly shows that Nasdaq is beginning to realize the magnitude of revenues it can gain from commissions versus spreads. Nasdaq should consider system-wide priority rules for all trades. While the primary-priority rule should be based on price, the secondary rule does not have to be based on time.

For example, the secondary-priority rules on the Toronto Stock Exchange are designed so that each member with orders on the book is guaranteed at least a partial fill. An order exceeding the size of the first quote at a given price is shared among all quote participants on an equal-allocation basis, up to some level (2,000 shares). Any remaining amount is allocated on a prorata basis.

Nasdaq should remember the lesson it learned in 1983 when it fought hard to prevent contemporaneous trade reporting. Recall that then-NASD President Gordon Macklin met with the SEC six months after the NASD was forced to accept the rule for a small group of stocks, and asked that all of its stocks be subject to the rule.

It turns out that change was good for business, because volumes and profits increased after the rule change. I believe the same would be true if Nasdaq created a level playing field and allowed limit orders a chance to be executed.

Daniel G. Weaver is an associate finance professor at Baruch College in New York and an expert on market microstructure.

In a move to strengthen their global sales trading, New York's Arnhold and S. Bleichroeder named Stephen Tatz head trader of the department. Tatz, a former head South African trader at the firm, reports to Geoffrey Collier, head of equities at Bleichroeder.

Four additional traders joined the global sales staff at Bleichroeder, reporting to Tatz. Roger Simpson moved from GFI Group in New York, where he was an inter-dealer broker. Kent Penney was previously an institutional salesman at New York's Alexander, Wescott & Co. Abigail Williams joined the firm from Josephtal & Co. in New York. And Chris Kramer was internally transferred from the convertible-bond trade desk.

Merrill Lynch & Co. named Jeffrey Peek head of its asset-management unit in the wake of the firm's $5.3 billion merger with London's Mercury Asset Management Group. Peek will be responsible for coordinating Merrill's $275 billion worldwide asset management activities. Previoiusly co-head of investment banking at the financial giant, Peek will be based in New York.

Richmond-based Scott & Strinfellow promoted David B. Marino to senior vice president. He serves as head position trader and manager of Nasdaq trading at the firm. Marino, a 14-year industry veteran, has been with Scott & Stringfellow since 1989.

Elizabeth Wood was named a senior sales trader for the international institutional equity-sales and trading division of New York-based Cantor Fitzgerald & Co. Wood is responsible for executing orders on non-U.S. equity products for the firm's leading institutional clients. She closed out her own independent firm, Robinson Investment Group in New York, to join Cantor.

The National Association of Securities Dealers appointed Gregor S. Bailar chief information officer for the organization and its subsidiaries, NASD Regulation and Nasdaq. In his newly-created position, Bailar will oversee all aspects of information technology, reporting to NASD Chief Executive Frank Zarb, and Richard Ketchum, NASD chief operating officer. Bailar, formerly a managing director and vice president of advanced development for global corporate banking at New York-based Citicorp, will be based in Washington.

The NASD also promoted John M. Hickey to chief technical officer, responsible for technology operations at the NASD. Hickey will continue in his current responsibilities at Nasdaq as an executive vice president of technology services, responsible for the day-to-day operations of the Nasdaq stock market. Hickey is based in Washington.

Dean Bruskof joined Sharpe Securities in New York as a director of exchange services on the floor of the New York Stock Exchange. Bruskof previously served in the same capacity at the NYSE for Chicago-based Rodman & Renshaw.

Campbell & Co. named Bruce Cleland chief executive officer, to replace Keith Campbell, the firm's founder and principal. Campbell will continue as chairman.

Citicorp Securities Services appointed Michael Richter president, responsible for marketing, product management, sales and trading. Richter, previously with the firm's distribution and investment-products group, reports to Ashok Bhatia, chief executive and chairman of Citicorp.

The New York-based brokerage firm also named Dennis M. Sarf a senior vice president of business development and correspondent-clearing sales. Sarf joined Citicorp from New York-based accounting and consulting giant Coopers & Lybrand. He reports to Richter.

Wesley M. Oler, head of equity trading at Brown Brothers Harriman & Co. in New York, was promoted to senior manager at the firm. A 19-year veteran at Brown, Oler supervises the domestic and foreign institutional trading desks, as well as the listed brokerage operation and electronic-trading group. He also serves on Brown's brokerage-management committee.

New York-based Cantor Fitzgerald appointed Joseph Simon chief financial officer. Simon will direct all of the firm's global finance and treasury operations, supervising a staff of more than 250 financial specialists. He previously worked as an international controller at Cantor.

Everett M. Ehrlich, a former undersecretary of commerce during the Clinton administration, joined the Securities Industry Association as an economic consultant. Currently, Ehrlich heads his own Washington-based consulting firm, ESC Company, which he formed last year after leaving his adminsitration post. Replacing outgoing SIA economic consultnat Jeffrey Schaefer, Ehrlich will report directly to SIA President Marc E. Lackritz.

One of two New York Stock Exchange vice chairman, James Jacobson, will step down from their post in June and not seek reappointment. Jacobson served as a vice chairman from 1992 to 1993, and was elected to his second term in 1996. The NYSE board appoints the two vice chairman to serve two-year terms. Jacobson, head of a specialist firm Benjamin Jacobson & Sons on the Big Board floor, served on the NYSE board from 1987 to 1993.

ABN AMRO Chicago Corporation has changed its name to ABN AMRO Incorporated.

Separately, the Windy City-based firm named Timothy J. Leach president and chief executive of its U.S.-registered investment advisor, ABN AMRO Asset Management. Leach was previously president and chief investment officer at Qualivest Capital Management in Portland.

New York-based Dresdner Kleinwort Benson North America, the U.S. investment-banking arm of Dresdner Kleinwort Benson, named Linda Byus and Jim Falvey senior equities research analyst. Byus joined Dresdner from Toronto-based Nesbitt Burns, and will specialize in the electric-utility industry. She will be based in Chicago. Falvey, previously with recently merged Smith Barney, will work in the firm's Boston office as an integrated-oil analyst.

Dresdner also hired Mike Cody as a senior sales trader, and Lee Middlekauf as a senior salesman. The two will be based in the New York domestic equities group. Cody was previously wit NatWest Securities in New York. Middlecauf was formerly a salesman at Boston-based Tucker Anthony.

Global giant Merril Lynch appointed E. Stanley O'Neal its chief financial officer. O'Neal previously served as co-head of Merrill's corporate and institutional client group, which includes investment banking and securities trading worldwide. Based in New York, he succeeds Joseph T. Willett, who will become chief operating officer for Africa, Europe and the Middle East.

The Securities and Exchange Commission has proposed a regulatory initiative to curb small-cap fraud and increase the responsibilities of broker dealers quoting small, thinly-traded over-the-counter stocks.

In a similar push, the National Association of Securities Dealers will publish, at the end of this month, a list of companies no longer meeting new standards to list on Nasdaq.

At press time, the SEC declined to comment on the outcome of the agency's Feb. 10 meeting.

At issue was a proposed SEC requirement that all broker dealers research and make available information on companies they quote on the pink sheets and the OTC Bulletin Board. At the moment, only the broker dealer initially quoting the over-the-counter stock is required to review the issuer's financial data. Updates are not required.

The SEC initiative is part of a larger agency drive to cut down on stock fraud. The pink sheets and the OTC Bulletin Board are generally perceived by regulators to harbor some questionably-listed companies.

Indeed, the OTC Bulletin Board, although owned by the NASD, is not held to the regulatory agency's listing standards.

Still, the SEC rule change may encourage rather than discourage small-cap fraud, according to Cromwell Coulson, chairman of the National Quotation Bureau, owner and operator of the manually-traded pink sheets.

"This rule springs from good intentions, but it will have the wrong results," Coulson said. "The new rules may put the information obligation on the broker dealer, who is not controlling the source of information. That information is the responsibility of the listing company."

He added that if broker dealers back away from quoting small-cap stocks, the listings could move to a wholly unregulated marketplace, like the Internet. "That type of black-market trading could hurt investors terribly," Coulson warned.

Separately, the National Quotation Bureau last month announced it would automate the trading of their more than 2,700 listings, pending regulatory approval. Coulson said the new system would provide a real-time bulletin board of market-maker quotations and an electronic-negotiation and order-routing platform for subscribers. He hopes to have the pink sheets fully automated by year's end.

"We will be getting a lot more listings with these new Nasdaq requirements," Coulson said.

On Feb. 23, the NASD is expected to make public a list of companies that do not meet the new Nasdaq listing requirements, with a view of pushing these listings to the pink sheets or the OTC Bulletin Board.

Approved by the SEC last August, the changes include a requirement that all Nasdaq and Nasdaq SmallCap common and preferred stock have a minimum bid price of $1. If a Nasdaq stock dips below $1 for 30 days, the stock has 90 days to return to the $1 mark, where it must close above $1 for ten consecutive days. Failing that, the stock will be delisted. The NASD said this measure is a safeguard against market activity associated with low-priced securities namely stock fraud.

Most Nasdaq stocks will also be required to have two market makers, 400 round-lot shareholders, 750,000 shares in the public float, a market value of at least $5 million and $4 million in net tangible assets.

Additionally, the new rules state that each Nasdaq SmallCap listing must have 300 round-lot shareholders, 500,00 shares in the public float, a market value of at least $1 million and either $2 million in net tangible assets, a $35 million market capitalization or at least $500,000 in net annual income.

Coulson expects more than 2,000 Nasdaq issues to delist to the pink sheets or OTC Bulletin Board this year under the new requirements.