How much exactly does it cost to trade a block of stock? "Nobody quite agrees on a standard measure of trading costs," one expert said. "Several measures are used."

Costs head south if the trade beats the intra-day spread, but head back north if the trade results in negative market impact three days after it has crossed.

Soft-dollar rebates reduce costs, and some fees increase costs.

How to measure trading costs may even split the experts.

But more than 90 percent of executives at major investment firms do agree on one thing trading-cost analysis will be more important as a money-management tool over the next five years.

Measuring

According to a survey of 500 institutions by New York-based institutional brokerage Midwood Securities, these executives said trading-cost analysis is fast becoming a widely-accepted tool for measuring trading performance.

"One of the key factors driving it is the growing need for best execution," said Midwood President Terry March.

Among institutions that currently purchase or have their own systems, a large number use trading-cost analysis as a decision-making tool, according to the survey.

Another 29 percent use it for selecting broker dealers; 50 percent use it considering a switch to other broker dealers; and 32 percent use it when deciding how frequently to use them.

Gauge

Moreover, most of the institutions use trading-cost analysis to gauge the performance of staffers; 88 percent use the analysis to measure the performance of the trading desk; and 59 percent use it to chart their portfolio managers.

Almost 75 percent of the respondents prefer a system which measures both the quality of execution and the subsequent market impact of each trade.

One quarter use a system that focuses exclusively on the quality of execution, while 75 percent evaluate trading execution on both a trade-by-trade basis over a period of time.

Outside the U.S.

Half of the respondents stressed the importance of a system that analyzes trading costs in markets outside the U.S.

Sixty-two percent of the respondents reported that they currently use trading-cost analysis. Of those, 76 percent purchase a system, 18 percent use their own system and six percent use both.

Midwood is a nine-year-old New York Stock Exchange-member firm founded by March, a former senior financial officer at New York-based Dillon, Read & Co. (now part of SBC Warburg Dillon Read) and Sanford C. Bernstein. staff reports

John Chalsty stepped down as chief executive of Donaldson, Lufkin & Jenrette, the firm he helped to transform from a mid-sized broker dealer into one of Wall Street's top investment banks and trading powerhouses.

Chalsty, 64, who will continue as chairman at DLJ., was succeeded by Joe Roby, previously president and chief operating officer at the firm. The change temporarily leaves vacant the position of COO.

Chalsty began his career at DLJ in 1969 as an oil analyst. He was named chief executive in 1986. Under his leadership, the firm expanded in the areas of underwriting, sales and trading and investment banking, and revenues grew from $732 million in 1986 to $4.64 billion in 1997.

Roby, 58, began his career as an investment banker at DLJ in 1972.

Separately, on April 1, Claude Bebear will retire as chairman of the Equitable Companies, which is 72-percent owner of DLJ. Bebear will be succeeded by Henri de Castries, Equitable vice chairman and director.

Equitable's majority shareholder is global giant AXA Group. Bebear will retain his post as chairman of AXA's executive board.

Goldman, Sachs & Company, the last privately-owned U.S. blue-blood investment bank, seems to have it all: over-the-counter and listed trading that whips up envy on Wall Street, fixed income, corporate finance and equity derivatives business that dwarf most competitors.

But Goldman is still struggling to catch up in a less glamorous business selling to Joe Sixpacks, the retail customers that could transform Goldman into a serious mutual fund player.

Goldman, however, recently took a major step to reverse its fortunes, hiring Ammirati Puris Lintas, the advertising agency in New York that handles the accounts of Compaq Computer Corporation, the General Motors Corporation and United Parcel Service.

The agency will research Goldman's public image before the firm decides whether to proceed with a major advertising campaign aimed at the general public.

Follow Lead

But it seems increasingly clear that Goldman will follow the lead of other major institutional firms, like the former Morgan Stanley & Co., pitching for retail customer's assets.

"It is a strategic imperative to be a retail player over the next twenty years," said Peter Starr, an industry analyst at Cerulli Associates, a Boston-based consulting firm. "As baby boomers retire in the next two decades, investments will be more retail-oriented."

Goldman currently has about $140 billion in assets under management, $8 billion in mutual funds.

Last year, both J.P. Morgan & Co. and Morgan Stanley were involved in major deals centered on expanding their retail asset management.

In June, Morgan Stanley completed its much-publicized $10.3 billion merger with retail giant Dean Witter, Discover & Co. The deal united one of Wall Street's top institutional houses, Morgan Stanley, with one of its top retail houses, Dean Witter.

"The Morgan Stanley merger with Dean Witter changed Wall Street's investment dynamics," said Beau Ogden, a merger and acquisition banker at Salomon Smith Barney in New York. "It let firms know they have to diversify to remain successful."

In July, J.P. Morgan purchased a 45-percent interest in Kansas City-based American Century Companies for $900 million. American Century, the fourth-largest no-load U.S. mutual-fund company selling directly to individuals, manages $60 billion in assets in almost 70 mutual funds. J.P. Morgan manages $234 billion in assets, approximately ten percent of which are in mutual funds.

Financial Obstacle

Goldman, however, has one major financial obstacle it does not have publicly-traded stock with which to make the kinds of aggressive acquisitions made by other firms. "I don't think their partners would welcome a retail firm if it meant they had to go public," Starr said. "But they certainly have the capital to make an acquisition without it."

Goldman, which has 200 partners, earned more than $3 billion before taxes for the 12 months ending Nov. 30, an average of $15 million for each partner.

"With firms priced so much higher than their value in this market, I think Goldman would just rather build their own retail base," Starr added.

One clear sign that Goldman is serious about retail investors: It has staffed a full-time, five-person public-relations team, supplementing the work of outside consultant Ed Navotne.

"Goldman has decided to build a retail business rather than buy one," Starr said. "By hiring an advertising firm and building public relations, they are trying to improve their image among retail investors."

Extended trading hours on U.S. stock markets, once dismissed as unrealistic, may soon become necessary for the success of a pilot program at the New York Stock Exchange.

About a dozen European companies are expected to join the program and begin trading their ordinary shares in multiple currencies within the next 18 months.

Speaking at an industry conference, Big Board President Richard Grasso said the exchange had started negotiations with several companies in the U.K. Italy, Germany and France about listing their ordinary shares in domestic currencies.

More than 300 of the 3,000 companies now listed on the Big Board are non-U.S. issues, and most trade depository receipts, which represent dollar-denominated certificates for an underlying number of shares. Grasso said if the pilot program is successful, the NYSE would have to extend its trading day to up to 20 hours. That, in turn, would likely force Nasdaq to eventually extend its own trading day, experts said.

Silicon Alley, the fabled stretch of downtown Manhattan where New York's high-technology hopes merge with the labor of budding, young computer whizzes, is no Silicon Valley.

Truth is that Silicon Valley, the sun-dappled Santa Clara home to the greatest concentration of more technology whizzes, easily beats Silicon Alley in initial public offerings.

But as IPO volume soared to near-record levels last year, areas sprouting high-technology development may challenge both Silicons. Still, that could be many years hence.

"California's Silicon Valley is still the biggest area for new technology development," said Joe Hammer, director of equity syndicate operations at Boston-based Adams, Harkness & Hill.

However, he added, times are changing. "California and even Massachusetts don't have the lock on technological development that they used to," he said.

Indeed, though California remained the nation's undisputed leader in IPO issuance last year, its slippage as a technological mecca is confirmed by figures from Securities Data Co.

After accounting for 14.5 percent of overall IPO volume, or $7.27 billion in deals in 1996, California-based companies tapping the public market slipped by 25.75 percent to $5.47 billion last year. In absolute terms, the year-over-year shortfall was surpassed only by companies originating in Texas, where issuance fell by $2.87 billion, or 48.29 percent, to $3.07 billion.

While some pundits in Silicon Alley would claim the mantle Silicon Valley of the East, Virginia-based investment banks may think otherwise. The banks, in fact, are gearing up to meet the financing needs of companies, many of them high-technology outfits within Washington's Beltway.

"We're trying to take advantage of what's going on in the area," said James Tyler, managing director of equity syndicate at Richmond-based Scott & Stringfellow. "There's a lot of telecommunications and technology companies along the Beltway surrounding Washington."

Amid the massive cutbacks in the military, companies within that region have had to reinvent their business models around real-world applications, Tyler noted.

On the heels of the Old Dominion State's mainstream-oriented transactions last year, the debuts of several successful technology-focused companies portends a strong new issues pipeline from the state. (Last year's mainstream crop included a Morgan Stanley, Dean Witter, Discover & Co.-led offering, CarMax Group (NYSE:KMX) in February, and a Goldman Sachs & Co.-led offering from AMF Bowling (NYSE:PIN) in November.

The 1997 Virginia class of technology offerings included:

* Template Software (Nasdaq:TMPL), a provider of pre-written software templates designed to reduce the time necessary to write new applications. The Dulles-based company priced 2.1 million shares at $16 a share through a syndicate headed by San Francisco-based Volpe Brown Whelan last January.

* Maximus (NYSE:MMS), an outsourcer of health and human services. The company debuted through New York-based Donaldson, Lufkin & Jenrette last June at $16 a share.

* Hagler Bailly (Nasdaq:HBIX), an Arlington-based consultant to the private and public sectors of the energy, utility and environmental industries. Last July, Hagler Bailly placed 3.15 million shares at $14 each, also through a DLJ-led syndicate.

* Network Solutions (Nasdaq:NSOL), a leading provider of Internet-domain registration services. In September, the Herndon-based company priced 3.3 million shares through a syndicate headed by San Francisco's Hambrecht & Quist at $18 a share.

* Best Software (Nasdaq:BEST), a developer of software tools that address human resources and payroll management. The Reston-based company debuted through an Hambrecht-led syndicate in September with the placement of 4.15 million shares at $13.

Overall, 22 Virginia-based companies tapped the IPO market to the tune of $1.76 billion in 1997, a 172.3 percent leap over the 1996 level. That issuance helped guide IPO volume across the Southeast, the only region of the U.S. to bring more companies public in 1997 than 1996.

This year and beyond, New York-based investment banks will likely encounter more competition from the state's regional underwriters, most of which are building war chests to finance new development in the state.

"We are certainly gearing up in terms of research, corporate finance and institutional sales," Tyler said.

Also, Friedman, Billings, Ramsey in Arlington and Richmond-based Wheat First Union are almost certain to open up their coffers for new business development (following a December self-underwritten public offering by Friedman Billings, and the minting of Wheat First Union after First Union Corp. acquired Wheat First Butcher Singer on Feb. 2).

"I think that if you want to find the true story behind Virginia, you would have to look at Friedman Billings," said Henry Valentine III, director of equity syndicate operations at Richmond-based Davenport & Co.

Founded in 1989, Friedman Billings' $1.9 billion of capital placed via IPOs vaulted the firm to the eighth spot in the 1997 manager rankings, up from the 22nd spot in 1996, according to Securities Data Co. figures.

To be sure, 1997 will go down in IPO history as one of the market's most prolific years, trailing only the volumes posted in 1996. Even so, underwriters owe credit to an unprecedented level of new-equities issuance by foreign companies.

Following a banner year for the IPO market in 1996, when a total of 874 companies raised a little over $50 billion, the amount of new capital raised slipped to $44 billion in 1997, according to Securities Data Co. The domestic component of the 1997 IPO volume fell by $6.46 billion to $33.11 billion, while issuance by foreign-based companies climbed by $459.4 million to $10.89 billion, an all-time record.

Stephen Lacey is associate editor of The IPO Aftermarket, a sister publication of Traders Magazine.

Equity traders are muttering a silent prayer, crossing their fingers and counting down the days until Jan. 1, 2000. As the new century dawns, many computer systems set to read years by the last two digits will lose their ability to track dates.

While the so-called millennium bug will challenge virtually all businesses, government agencies and other organizations, equity traders will be particularly vulnerable because of their heavy reliance on computer technology.

Street-wide Testing

In a letter to broker dealers and transfer agents last November, Securities and Exchange Commission Chairman Arthur Levitt requested that their systems be Year-2000 compliant by the end of 1998, to enable them to participate in a Street-wide testing scheduled to begin in February 1999.

But few industry observers expect that goal to be reached.

"I'd say that the chances of total compliance by the end of this year are about nil," said a trading director at a major Midwest equity-trading firm.

"Who knows what's going to happen, but I've heard things like systems kicking out 100 years of dividends," the trader said. "Other things, like holding periods for taxable items and past-due accounts getting all messed up, have been mentioned."

Even something as basic as computer-generated time-stamping is at risk. "Time stamping a ticket with 1900 just won't work," the trader quipped.

The Stakes

The stakes facing the trading industry are enormous. A report on the Year-2000 problem, released earlier this year by consulting giant Computer Sciences Corp. of El Segundo, Calif., predicted that a one-week failure at a major U.S. clearinghouse could result in total market costs of up to $5.2 billion. "Trades may be transmitted with incorrect or missing information, or may not be transmitted at all, due to non-compliant computer systems," said Craig Plotkin, a Computer Sciences senior consultant.

"If one firm injects bad trades into the system, its trading partners would have to manually investigate each one, which would slow things considerably," he added.

"Traders are likely to experience real operational problems," said Tony Keyes, the author of "The Year 2000 Computer Crisis: An Investor's Survival Guide," published by The Y2K Investor of Brookeville, Md. Keyes noted that with a typical trade involving more than two dozen organizations from order entry to clearance and settlement, the potential for a Year-2000 glitch creeping in along the trade chain is substantial.

"I think it's more likely to happen than not," he said. "The question is, Will the trading firm discover the weak point before Jan. 1, 2000?'"

"What makes the problem particularly worrisome is that nobody works in a vacuum," said Bernard L. Madoff, chairman of New York-based third-market trading firm Bernard L. Madoff Investment Services.

"Everyone is co-dependent traders, brokerage firms, clearing organizations, banks and so on," he added. "Solving Year-2000 issues is a major undertaking and a big concern because it's something that was never done before."

Time Consuming

John Panchery, vice president and Year-2000 manager for the Securities Industry Association, said the task of checking in-house systems and external information sources for Year-2000 compliance is more time consuming and complex than anyone anticipated a few years ago.

"Someone at each organization needs to be doing due diligence to make sure that all of the products traders use have been checked for compliance," he said.

But Panchery admitted that much work remains to be done over the next year-and-a-half.

The trading desktop is an area that's particularly susceptible to Year-2000 problems, said Lawrence Tabb, group director of The Tower Group, a Newton, Mass. firm that analyzes technology trends in the banking and securities industries.

"The trader is directly responsible for the P&L [profit and loss statement] of the firm," he said. "If his trades don't clear or settle properly because of Year-2000 problems, the firm will lose money."

Market-data support may be the thorniest problem, according to Tabb. "There's a tremendous amount of information, from an almost endless number of sources, that comes to traders through electronic means," he said.

"If the analytics behind the data aren't set up to be Year-2000 compliant," Tabb explained, "then traders aren't going to receive the kind of accurate market-data support they're used to receiving. The problem is insidious and potentially disastrous."

Tabb added that it is difficult to avoid the threat because of the number of information sources involved. "How can you question everyone who generates information? You can't," he said.

Order-Routing Systems

Panchery observed that order-routing systems are especially susceptible to Year-2000 problems. "These systems are heavily reliant on dates and comparisons of dates. A failure here, or at any other point from the trader's desktop down to the floors of the exchanges and back, could lead to big trouble," Panchery said.

Panchery added that management systems represent another area that requires close attention. "Since these systems rely on market fluctuations by date, a Year-2000 bug could produce catastrophic results," he warned.

Telecommunications systems, which traders use for everything from executing trades to calling out for pizza, are also imperiled by the Year-2000 problem. According to Ken Dumont, a vice president at Mitel, a telecommunications equipment manufacturer based in Kanata, Ontario, problems will occur where telephones, private switchboards, modems and other telecommunications products interface with databases.

"If a firm has a link between a database and its telecommunications system for call logging, tracking or management, there's a potential for problems," he said.

Dumont noted that difficulties can also arise on the telecommunication carrier's end, as billing and other systems go haywire, causing complete or partial system shutdowns. Dumont suggests that firms carefully question the developers of their database software and telecommunications hardware, as well as their telecommunications carrier, on Year-2000 preparedness.

Keyes said international communications will be especially affected by the Year-2000 problem. "British Telecom has already warned customers that they will not place or take calls from countries with telephone systems that are not Year-2000 compliant," he said. "As the millennium arrives, there may well be places effectively cut off from worldwide communications."

Personal Software

Tabb said one major problem overlooked by most Year-2000 analysts concerns personal software built in Excel, Lotus 1-2-3 and similar financial-modeling programs that many traders depend on.

"They rely on these models on a day-to-day basis to value their own arbitrage possibilities, to get a view on the value of companies or for an idea of where the market is headed," Tabb added.

Tabb noted that since these models are maintained by the traders themselves, in-house technologists are limited in the assistance they can provide. "No one even knows how many traders are using these programs," he said.

Scott Saber, senior vice president of business development at VIE Systems, a computer-systems consulting company based in Lyndhurst, N.J., said the potential for an industry-wide meltdown "definitely exists."

But he also noted that the effects probably won't be distributed evenly across firms.

"There's a huge difference between what a Morgan Stanley, with all of its resources, can do to solve their problems, and what a smaller firm can do on its own," Saber said. He expects that most of the major trading firms and their partners will have their systems basically under control by Jan. 1, 2000.

"But some smaller firms may slip past the deadline and suffer dire consequences," he added.

According to Saber, a former buy-side trading technology manager at investment banking giant Morgan Stanley, Dean Witter, Discover & Co., firms have three options: fix problems themselves, go to each system's vendor for help or work with a Year-2000 consulting firm.

"In reality, the complex nature of the Year-2000 problem is forcing many firms to use all three options," he said.

Triage' Approach

Jessica Keyes, president of New Art Technologies, a New York-based Year-2000 consulting company that works with securities firms, said many of them are taking a "triage" approach to Year-2000 problem-solving.

"Firms are facing threats on so many different fronts, that they're taking stock of every system they have and they're figuring out what must absolutely be changed first," said Keyes (no relation to Tony Keyes).

"With any luck, this approach may allow them to sidestep a major catastrophe, but will still probably permit minor bugs to slip though," she added.

While many trading firms will be pushing their system-conversion deadlines right up to the current millennium's end, the government is in even worse shape.

"Traders rely on a good deal of government-generated information," Jessica Keyes said. "Unfortunately, the latest assessment is that over half of all government agencies won't complete their Year-2000 projects in time."

She said that shutting off even a fraction of the government's information flow "will make it a struggle" for traders to continue their business as usual.

Jessica Keyes added that information from other governments is at even greater peril. "Even if by some miracle our government and private-sector entities convert all of their mission-critical information systems in time, we could still be completely undermined by the rest of the world not getting their job done," she said.

SIA Priority

Straightening out potential Year-2000 pitfalls has been a top priority of the SIA, Panchery said.

Panchery noted that while the SIA is providing guidance, it is up to individual firms, as well as traders themselves, to make sure that their systems are compliant.

"No one organization can help everyone," he said. "We're attempting to provide a framework that companies can use to meet their Year-2000 goals." The SIA has posted a variety of Year-2000 information, including a recommended timeline to its world-wide-web site at: http://www.sia.com.

While work continues at a frenzied pace, Panchery is optimistic that the industry can successfully navigate its way through most Year-2000 perils.

"Next year's testing, which will show how well firms work with their partners on Year-2000 compatibility, will mark a big step toward achieving the goal of widespread compliance," he said.

Madoff said that there's still time for the industry to escape relatively unscathed. "If everybody meets their conversion deadlines on time, then there should be little or no impact," he said.

But Tony Keyes' outlook is gloomy. "There's no way of telling exactly how bad it's going to be, but the negative ramifications will be felt well into the next century," he said.

Alfred R. Berkeley III, a 6 feet 3 inch former rugby player, once shouldered a cow onto the roof of a university building.

That college prank, however, does not compare with a much weightier matter now on his shoulders supporting the world's second-largest stock market, arguably through the most tumultuous period in its history.

Even so, Berkeley does not underestimate a challenge, including that now infamous prank 32 years ago at his alma mater, the University of Virginia, where a 250-pound black Angus was summoned to action.

"Oh, no," Berkeley recalled in an interview with Traders Magazine, "it was a lot heavier than that."

The Hot Seat

Berkeley is no longer playing pranks, and life is much busier. Berkeley, in fact, hasn't had many slow days since he became president of Nasdaq in June 1996. "I don't know that I fully comprehended how much of a hot seat it would be," he said. "But I'll tell you, I'm absolutely convinced we're doing the right thing."

Well, he proved that before. "He was always very much a deep thinker, and very sure of himself," said Mike Murphy, a former equity trader and partner at Alex. Brown & Sons, who worked years ago with Berkeley, then an analyst at the blue-blooded Baltimore-based firm.

Murphy, now head of trading at New York-based buy-side firm Kerns Capital Management, added that like many people at the firm back in the 1970s, Berkeley wore many hats. "He was even involved in institutional marketing," Murphy recalled. "He was smart and he helped turn Alex. Brown into a national-type firm."

The challenge today is different. The National Association of Securities Dealers is being remade from the ground up, and one of Berkeley's first jobs when he arrived was to implement the Securities and Exchange Commission's order handling rules.

More recently, Nasdaq's plan for a consolidated limit-order book was announced in December 1997, soon followed by what many traders considered another bombshell a proposal to weld Durango, Colo.-based OptiMark Technologies' trading system to the Nasdaq platform.

No Trading Background.

On the face of it, Nasdaq is in the throes of a revolution. And in the middle is a man who's the first to admit he has no trading background no experience making markets, running a Nasdaq desk or executing orders.

If ever a job description guaranteed headaches, sleepless nights and early burnout, this sounds like the one.

So how come Berkeley seems to be having the time of his life? And who is he?

Born in 1944, Berkeley grew up in Charlotte, N.C., and graduated from the University of Virginia in 1966 with a degree in English. He added a master's degree from the University of Pennsylvania's Wharton School of Business in 1968, then served four years in the U.S. Air Force, discharged with the rank of captain. In 1972, he took a job as a research analyst at Alex. Brown.

Berkeley's military duties had given him some familiarity with Univac computers, and he became one of the first analysts in the country to grasp the potential of the budding software industry. He started Alex. Brown's very successful high-technology group, and became managing director of mergers and acquisitions in 1987, specializing in technology companies.

In 1989, Berkeley took a leave of absence to join Safeguard Scientific in Wayne, Pa., and helped to turn around a number of its troubled computer-network and data-management software subsidiaries. He returned to Alex. Brown in 1991 as a managing director and senior banker in the corporate-finance department, again focusing on the sector now known as information technology.

Berkeley also served on Nasdaq's board of directors from 1986 to 1991, and on its Industry Advisory Committee, which advises Nasdaq on technology development.

So Berkeley wasn't a total stranger when the NASD came calling in 1996 with a bigger job.

Alter Ego

To be sure, he has impressive credentials, but on the surface they might make him just another bright guy in a suit with an accomplished career in investment banking. A closer look, however, provides a glimpse of a man who might have a surprise or two to offer. Hardly a wild Butch Cassidy alter ego, but perhaps one informed by its own drummer.

Last summer, the world learned of a secret that had been closely guarded for more than 30 years. At a reunion of his college class, Berkeley was coaxed into admitting his role in a prank that caused quite a stir on the Charlottesville campus back in the spring of 1965.

He and three confederates had somehow managed to get a cow up onto the domed roof of the Rotunda, the historic campus building designed by the university's founder, Thomas Jefferson. Local authorities were able to get the animal back down, with considerable difficulty.

(The animal, sedated with the tranquilizer sodium pentothal before being led down about 100 stairs, perished later from stress and heat exhaustion.)

The culprits had never been caught.

The school's alumni magazine, the UVA Alumni News, ran an article about Berkeley in its summer 1997 issue, and naturally enough, included this anecdote. Among the readers was George Bailey, the retired county sheriff who had investigated the matter in 1965.

"So he wrote me a letter," Berkeley said, "and I called him up, and he was interested in my side of the story. I hadn't known he had a side of the story until he told me." It turned out the sheriff's office had spent $1,755 on the investigation. After talking it over, Berkeley sent a check for the same amount to Bailey, who donated it to a volunteer ambulance squad.

The story made its way into the Washington Post, and outwards to the farthest reaches of the global media, perhaps causing Berkeley a twinge of regret that he ever mentioned it.

Actually, the fallout may not be that bad, if the comment of one institutional trader is a clue. "I always thought Berkeley was an interesting guy, but I thought, Geez, that's a cool thing to do.'"

In any event, since the cow was already out of the barn, Berkeley decided to set the record straight.

Early accounts, for example, said the animal on the roof was a calf. "It was actually a little older than a calf," Berkeley told Traders Magazine, "it was almost a yearling."

And how exactly did he get it up there? "It took four of us, four big strapping guys, to get that thing to go up the stairs. Mr. Jefferson built some steps into the wall of the Rotunda," Berkeley said. "The thing is, those steps were exactly one cow wide. Our premium was on silence, so we actually treated that cow very, very gingerly. We could not afford to have a cow go moo in the night."

Is it true that Berkeley was only trying to outdo the collegiate antics of his father, Dr. Alfred Berkeley Jr., Virginia class of 1936 and noted prankster? "It actually started out as just a good idea, and the interpretation that it was to one-up my father has become more pronounced than it actually was. It was just a good prank, kind of like climbing the mountain cause it's there," he said.

Thanks, Al.

What happened afterward? "We just laid low for 32 years. The great part of the thing was lying low." Berkeley added. "And watching other students try to take credit for it? Of course, we got a great grin at that."

His Heroes

The cow story not only makes a colorful anecdote, but points to the basic incongruity in Berkeley's nature. It was a stunt people remembered 30 years later, which is no minor accomplishment to an English major whose favorite author is Mark Twain, and who still calls Tom Sawyer and Huck Finn his heroes.

What really stands out is that the ringleader of this escapade was such an Eagle Scout.

"It never once dawned on me that Al was involved," said Steve Hopson, Berkeley's classmate and Delta Kappa Epsilon fraternity brother, now head of career planning and placement at Virginia's law school. "He was very bright, highly motivated, and had a real presence about him. Whenever there was a problem in the fraternity house, Berkeley was the kind of guy who would handle it," Hopson said.

"Al liked to have a good time," added Strother Randolph, a collaborator in the cow-on-the-roof caper, "but he knew where to draw the line when the rest of us didn't. We would go over the nickel bridge in Richmond and try to get away with not paying the nickel. But even this small amount of dishonesty bothered Al."

Backing these character testimonials are some of Berkeley's extracurricular activities. He was a resident advisor to younger students, a member of the U.S. Air Force ROTC and vice president of the University Union, a role that took him around the country talking to audiences about the school's honor code.

Needless to day, a college kid with squeaky-clean tendencies risked being so boring he could give virtue a bad name. Young Al was lucky. His extracurricular activities also included working on the Daily Cavalier, Virginia's student newspaper (everyone knows journalists are a cynical lot), and playing rugby, slamming into people just for fun, presumably helping to counter a choirboy image.

Above all, Berkeley had a hereditary streak of mischief. He communed with his inner Huck.

Other Incongruities

There are other incongruities in Berkeley's nature. William Patternotte, a managing director at Alex. Brown, who's known him since the 1970s, was struck by Berkeley's intuitive skill as an analyst.

Patternotte said research professionals often are so immersed in numbers and details that they risk loosing sight of a much bigger picture.

"Al was exactly the opposite. He actually was not particularly strong on the financial details of analysis, but he was terrific at seeing the big picture. He has the ability to look further than most into the future," Patternotte said.

Patternotte describes Berkeley as a man of relatively simple tastes, but with a passion for cutting-edge technology. Picture a guy in the 1980s, he suggests, "driving probably an early 1970s-model station wagon, with a cellular phone on the front seat, and this is when cell phones were pretty new."

Lives in Baltimore

Berkeley still lives in Baltimore with his wife Muriel, commuting to work each day in Washington when he is not on business outside the Beltway. The Berkeley's have three daughters, but so far none have shown an interest in finance. One teaches in inner-city Baltimore, another is studying law at Yale University, and the youngest is a freshman at Georgetown University.

His rugby days are over, but Berkeley still tries to find time for outdoor activities long walks with his wife, jogging or bike riding with his brother and fly fishing whenever he can. "My latest exercise kick is rowing," he reported. His daughter at Georgetown, who rows crew, spurs him on.

"She challenges me to what she calls power hours.' A power hour's grueling I typically do about a power half-hour on my rowing machine. But it's great exercise in the winter."

Berkeley admits to being a chronic dabbler. "I've got a closet full of every kind of sporting equipment in the world, and I'm an expert at none of it," he said.

Many of the same traits a low-key personal style, high-tech fluency and an eye for the big picture have been evident since his arrival at Nasdaq, some Berkeley watchers say.

"I don't want to say how I'm doing," Berkeley responded when asked to assess his performance. "I think you have to look at this as a team effort. I stepped into a new organization in June 1996. [NASD Regulation President] Mary Schapiro was here, and [NASD Chief Executive] Frank Zarb was on his way."

Of course, that would be the politically correct thing to say, but Berkeley does get credit as a team player from observers in the industry.

"He admits flat-out that he doesn't have a trading background," said Holly Stark, head trader at New York buy-side firm Dalton, Greiner, Hartman, Maher & Co. "But he knows enough about the industry to know the questions to ask."

Berkeley recruited people with important expertise. "It was very smart of Al to realize he needed some other top management. There's a lot of nitty-gritty stuff that he had to deal with," Stark said.

John Tognino, president of the Security Traders Association, said that Berkeley and Nasdaq have been extremely helpful and generous making themselves available, participating in STA-sponsored roundtables.

Nice compliments, but being accessible and team-oriented aren't the only issues at stake. Given the number of changes swirling about Nasdaq, a lot of people on trading desks wonder if things are getting out of control.

Berkeley and others certainly seem receptive. "But you can't really tell if they're paying lip service or not until results are shown," said Michael Barone, head of Nasdaq trading at William Blair & Co. in Chicago.

Barone said most of his colleagues in the trading community had suggested that Nasdaq detatch its proposed consolidated limit-order book from its order-delivery and execution system. "Of course they didn't do that, they just went right ahead," Barone said.

"Berkeley's willing to listen," said Tony Broy, president of Jersey City's Hill, Thomson, Magid & Co., "but I don't know if it does any good. I don't think there's anybody at the NASD who's going to be responsive now to market makers. They're on a mandate from God."

The controversies over the limit-order book and OptiMark have left many traders feeling out of the loop. "Most of the people in the trading community were surprised," Tognino said, adding wryly that "the NASD, Nasdaq and OptiMark ought to get very high marks for confidentiality."

"It's very inappropriate for OptiMark to be partners with the NASD," said Kenneth Pasternak, president of Knight Securities in Jersey City. "[OptiMark is] interesting and I welcome it as a competitive participant in the marketplace. I just think it's inappropriate for Nasdaq, owned by the self-regulatory organization, to compete with the market participants."

Added Barone: "There are certainly market makers out there who feel that there's some agenda within Nasdaq to kind of shut them out of the picture."

Berkeley takes the criticism in stride. "It's very risky to assume that any entrepreneurial community like the market makers is threatened," he said. "If you go back to the improvements the SEC ordered in 1975 [on May Day, when fixed commissions ended], those changes caused a lot of pain and agony in the short term."

Berkeley added that the results were wonderful. "In 1975, the institutional investor could trade at 25 cents a share. They're now trading at what 2.5 cents a share? That's a 90-percent reduction. And we have 50 times the volume in our markets.

"We believe those trends are iron laws of economics. About 450 firms went out of business after May Day, but the ones that adapted, the ones that invested, the ones that innovated, are larger than they ever dreamed of being."

Looking Ahead

Looking ahead, Berkeley says his priorities are to find more balance in the market's structure and to keep promoting technology. The focus in 1997, he said, was to put in place the many changes meant to benefit investors. This year it's getting SelectNet fees and other costs down, "so that the pendulum, which has swung over to the investor's favor, leaves room for the market-maker system to exist and profit."

At press time, the possible merger of Nasdaq and the American Stock Exchange made his agenda even busier.

Inevitably, the changes at Nasdaq have profoundly influenced opinions about Berkeley. "Al brings an entrepreneurial approach to running Nasdaq, which is not all bad," one top Nasdaq trader said, "but I think he's crossed the line here. Until OptiMark, I would have given Al Berkeley good grades. I don't think there's anything wrong with making dough. But, you know, go start a company, Al. Don't take my fees."

Berkeley is making no apologies. "I'm actually finding this totally engrossing," he said. "After 24 or 25 years doing the same thing, this is really energizing, to be doing something new on a national scale.

But he may have a hard road ahead.

"Finding balance among many, many constituencies is going to be difficult," Stark said. But, she added, Berkeley is very smart. "I wouldn't short him."

A mallet stands out among the clutter on a desktop in Mesirow Financial's offices in Chicago. Is this for Thomas Avgeris, a big man never afraid of strangers in the Windy City?

No, Avgeris needs the mallet to hammer home one of the attributes some say has made Mesirow an important name in the scrappy business of correspondent clearing: good quality control.

That's right, quality control. And it was scrawled in big letters across the mallet crashing down on the desk.

Quality control, repeated Avgeris, a managing director at Mesirow's North Clark Street offices in the Windy City. "When in doubt, bring it out," he said, giving the desk another rap. "Quality control."

Soon the laughter was actually rattling the room. But this was no laughing matter. Mesirow, which has 125 corespondents, likes to rank quality control among the top reasons an introducing broker, or a smaller broker dealer, selects Mesirow to execute, clear and settle its equity transactions.

"We are an extension of the introduction broker, as it were," Avgeris said.

Symbolic Reminder

The mallet, of course, is much more than a symbolic reminder of how important quality of service is at Mesirow. The mallet is a good way to begin any article in 1998 about the correspondent-clearing business.

After all, the industry is now awaiting Securities and Exchange Commission approval on new clearing rules that could utterly change the relationship among clearing firms, their correspondents, the correspondents' customers the ultimate customer, actually as well as the regulators.

The objective is to enhance existing levels of quality control in a business that has not always demonstrated a sterling reputation.

The rules were submitted to the SEC in response to several highly-publicized cases of alleged investor fraud by broker dealers that use other broker dealers or correspondent-clearing firms to clear and settle their business.

In particular, regulators stepped up their demands for stricter clearing rules in the wake of the collapse of New York-based A.R. Baron & Co. Last year, a state grand jury indicted A.R. Baron and 13 former employees on charges of bilking investors of more than $70 million. The firm filed for bankruptcy in 1996.

Bear Stearns & Co., which processed A.R. Baron's business and wins high praise from many of its correspondents for running a good ship was questioned by the SEC, and separately, by the Manhattan district attorney's office about its role in the collapse of A.R. Baron.

At issue was the role of Bear Stearns, passive or otherwise, in the alleged wrongdoings of a correspondent.

Bear Stearns defended its role in the A.R. Baron debacle, pointing out, for instance, that it represented only a small fraction of its total clearing business. (Bear Stearns processes an estimated 12 percent of the volume on the New York Stock Exchange cleared through the National Securities Clearing Corp.)

Moreover, Bear Stearns stressed that customers make it clear in customer agreements they are aware that the firm acts as the backoffice provider that gives them investment advice.

Regulators, however, are not convinced that current clearing-firm rules are adequate. The National Association of Securities Dealers, in its proposed rule filing with the SEC, said that "concerns about questionable sales practices and potentially fraudulent activity by certain introducing firms, and the handling of customer complaints about those firms by their clearing firms, caused the staffs of NASD Regulation and the NYSE to examine the relationship between clearing firms and their client-introducing firms.

"The examination resulted in proposals to amend the NASD's and the NYSE's rules relating to the content and approval of clearing agreements to specify requirements for handling customer complaints."

Utmost Importance

The new rules that finally emerge from the SEC could be of the utmost importance to equity traders, particularly Nasdaq market makers. That's because the new rules, as proposed, would require clearing firms to file complaints against an introducing broker to self-regulatory organizations and to the correspondents themselves.

That, of course, may ultimately ensure a greater degree of investor protection than ever before, but could unfairly impugn some trading desks, compliance experts fret.

"Some customers could abuse this provision recklessly," one compliance expert said. "Suppose they had an unwarranted gripe, maybe it was something personal, they could make life miserable for the desk writing a complaint to the desk's clearing broker."

Another hot issue is whether the SEC will require clearing firms to inform a correspondent's customer, on receipt of a complaint from the customer, that the customer retains the right to transfer his account to another broker dealer.

Some top correspondent clearing-firm executives are worried. "It is scary what they are talking about," said an executive at a Jersey City-based clearing broker. "Will the rules also require us to furnish compliance data on the correspondent directly to the SEC? That would upset a lot of people."

Another executive, Frank Colella, director of marketing at New York-based BHF Securities, said an introducing broker may be required to send more compliance data directly to the clearing broker, or else risk having the firm not process the correspondent's business. BHF, which clears for 40 correspondents, typically institutional agency brokers, did not outline its own plans.

Avgeris has another view, pointing out that Mesirow, like other clearing brokers, now passes along complaints to the appropriate regulatory authorities. However, he draws a line separating the clearing broker from ultimate responsibility for policing the correspondents.

"That's up to the regulators and the correspondents' compliance officers," he said.

More Selective

One inescapable fact is that clearing firms have become more selective about their roster of correspondents. With small-cap fraud making headlines, more clearing firms are distancing themselves from firms specializing in the business be it market making or retail distribution.

That, unfortunately, hurts the majority of businesses in the small-cap area that run legitimate operations. And that's the unavoidable price for investor protection, compliance experts say.

There are other regulatory issues equally as breathtaking as the clearing-firm rules. For one thing, many clearing firms may have to step in and assist small to medium-sized Nasdaq trading desks to comply with the parameters of the NASD's pending Order Audit Trail System, or OATS.

Many of these desks do not have the systems capability or the budget to pull off the requirements for OATS compliance (mandated by regulators in the wake of the SEC's settlement with Nasdaq about two years ago). The system, as envisaged, would capture up to 25 trade details from the point of order entry to execution.

Another issue is Year-2000 compliance. But the man with the mallet had a word of comfort for his introducing brokers. "It's our job to worry about the Year 2000," Averis said. "All of our systems, including order routing, record keeping and clearing, have to be ready. That'll take some of the pressure off the introducing brokers."

ABN AMRO Chicago Corp. is stepping up its grab for more introducing brokers, hoping to join the major-league players in the correspondent-clearing business.

"There is nothing to say that we won't go out and acquire another clearing firm," said Joseph Oliva, a senior official who heads up marketing at the Chicago-based clearing unit of ABN AMRO.

Oliva's feisty talk is spurred, in part, by the transformation of the former Chicago Corp. from a regional investment bank into a global powerhouse.

Oliva, a veteran of the Chicago Corp.'s clearing business, now heads up a reenergized clearing unit on the wing of ABN AMRO Holding NV., the Dutch-based investment bank that dipped into its deep pockets to acquire the Chicago-based Chicago Corp. in September 1995.

With $50 million in capital (and the clout of the parent's much larger capital cushion), 50 fully-disclosed clearing correspondents, an even larger number of execution and omnibus accounts and up to 400 staffers dedicated to clearing, Oliva is not shy talking business.

"We want to be considered one of major clearings firms, like Bear Stearns & Co. and Pershing [Division of Donaldson, Lufkin & Jenrette], and we want to be in their arena," he said.

"In the past," Oliva added, "we were selective. Now, with up to $50 million in capital, we can go after firms that are major clearing candidates. We can consider firms with $50 million, $100 million or $200 million in margin debits."

Oliva stressed, however, that ABN AMRO is not prepared to do a reckless highwire act. "We have the same capital requirements as the major clearing brokers. We won't talk to any firm that does not bring certain levels of revenue to us and has less than $100,000 in net capital."

"Day trading is interesting but we'll only do it selectively," Oliva added. "We'll look suspiciously on firms doing a lot of penny-stock deals. What we want is well-rounded organizations not weighted 100 percent or 70 percent in any one area."

One good sign of the times, he said, is the inquiries his clearing business is now receiving. "We're getting calls from major firms that like what we do. They know we don't chase tickets, though tickets are nice, of course. They know we want quality business."