Citing convoluted language, the use of difficult formulae and a need for more testing, several Nasdaq trading firms have slammed the National Association of Securities Dealers' proposed new standards for primary market makers.

With the advent of the order handling rules, the original standards were shelved because old market-maker evaluations were unreliable. One standard, for instance, required market-maker spreads to be no greater than 102 percent of the average spread.

But it was practically impossible to measure when a market makers' quote change was driven by a customer order, entered and later canceled without an execution, making it difficult for desks to meet the 102 percent parameter, according to one major trading desk.

Since the order handling rules, all market makers have been designated primary market makers. The NASD's effort to impose new standards, however, is facing stiff opposition from some firms. Firms have complained about insufficient time to conduct independent analyses, and have expressed trouble understanding the NASD's primary market-making criteria for net-liquidity ratios, proportionate volume and proportionate trades.

Extended Comment Period

The NASD extended the public-comment deadline for the standards from May 1 to the end of May. In comment letters filed with the Securities and Exchange Commission before May 1, several firms blasted the NASD.

Wall Street investment-banking giant Morgan Stanley, Dean Witter, Discover & Co. urged the NASD to withhold approval of its pilot program for the new standards until the NASD submitted "clarifying language to assist firms in making an independent evaluation of its [primary market-making] status, and provide member firms with an initial analysis of its [primary market-making] status on a stock-by-stock basis."

"Until we have a better understanding of the impact of the proposed amendments, we are unable to provide more substantive comment," the letter noted.

Morgan Stanley said the new standards, as drafted, were onerous and difficult to calculate. In addition, the limited comment period and the immediate effectiveness of the technical proposal did not afford members sufficient time to comprehend the consequences of the amendments.

Favors Small Minority

Jersey City-based M.H. Meyerson & Co. stated in a comment letter that the NASD proposal was "blatantly slanted in favor of a small minority of market makers."

In a follow-up letter, the firm linked the proposed standards to another NASD proposal for an integrated order-delivery and execution system.

"The feature of sponsored access [to the limit-order book] by non-members in itself is a terrific concept, provided it is not tied to primary market status," the Meyerson letter noted. "We implore you to use this recommendation without any status modifiers."

"In essence, the NASD has asked that the SEC approve a major restructuring of Nasdaq without affording the public sufficient time to understand, comment or test the proposed changes," stated a CS First Boston letter. More time was needed for industry participants most affected by the changes to "review and reflect" the proposed amendments, the letter added.

Plain English

New York-based CS First Boston was upset with the convoluted language of the NASD's proposal, and urged the association to consider an SEC initiative requiring brokerages to disclose invesment information to investors in understandable English. The investment-banking giant noted that the NASD's proposal requires "multiple footnotes to explain essential, yet perplexing phrases."

"While we understand the concerns raised by the SEC and the NASD regarding the need for more meaningful criteria for the designation of [primary market-making standards] and the concomitant exemption from the short-sale rule, we are very uncertain whether the proposal is the proper way to achieve this goal," noted a letter from Wall Street investment-banking giant J. P. Morgan & Co.

J. P. Morgan worried that the relatively complex formulae appear to require primary market makers to accept significant risks in times of severe market conditions.

"While it does not seem particularly improper to expect a market maker to satisfy its proportional share of trading in an up or down market to be deemed a primary market maker, requiring a minimum arbitrary level of trading against the trend of buying or selling may prove especially harsh in certain circumstances, potentially imposing significant risk on market makers," the J.P. Morgan letter added.

The new standards would also require a market maker to "engage in significant levels of such putative liquidity-building transactions while being limited in its ability to sell short in a down market," J. P. Morgan noted.

Consequently, a market maker trying to buy in a down market would be unable to first sell short to position itself to buy that stock. Thus, the market maker would have to buy first, hoping to sell before the market fell further, potentially making qualification as a primary market maker quite risky.

An NASD spokesman told Traders Magazine that the comment period was extended so industry participants could read and comment on the materials published.

If the National Association of Securities Dealers finally decides to move its headquarters from Washington, can we expect a bidding war that makes a plan for the New York Yankees to move to Manhattan pale in comparison?

NASD President Frank Zarb makes no secret of his dream to move part of the NASD to

New York's Times Square to heighten the association's public profile. But one of Washington's top legislators thinks Zarb should consider another location.

How about quiet Findlay, outside Columbus, Ohio, in his congressional district? wisecracked Rep. Michael Oxley (R-Ohio), chairman of the House Commerce Subcommittee on Finance and Hazardous Materials.

"It's in the northwest of Ohio, a very nice spot, with several golf courses, clean air, no traffic, no crime. And Toledo, just 30 miles away, has an international airport," he told Traders Magazine.

Rep. Thomas Manton (D-N.Y.), the ranking member on Oxley's panel and a quintessential New Yorker, thinks the Big Apple is still the perfect fit.

"I don't think there is any great advantage to being in the nation's

capital," he said, exchanging glances with Oxley. "But there is an advantage to being in New York where the markets are made."

"New York Mayor Rudolph W. Giuliani doesn't like raiding when it comes to athletic teams, but this is one where there would be a real natural fit," Manton added.

Oxley put in another pitch for humble Findlay. "The [NASD staffers] could actually just commute from New York," he joked.

Lobbyists for U.S. exchanges are still pounding the pavement in the Senate, fighting for a reduction in Section 31(a) fees on Nasdaq transactions that could save dealers up to $20 million annually.

But prospects for a cut look bleak in the House, according to several sources who spoke to Traders Magazine. "Nothing is new here," said a Republican source who has closely followed the issue.

"I haven't heard of any additional activity," said a spokesman for Rep. Edward Markey (D-Mass.). "There doesn't seem to be any general sentiment for it."

"It's fairly difficult to make it happen," added the Markey aide, explaining that the legislation necessary to reduce the fees would follow too closely on the heels of the 1996 legislation which authorized Nasdaq transaction fees in the first instance. Section 31(a) fees fund the annual Securities and Exchange Commission budget.

The Senate

Meanwhile, the situation remains confusing in the Senate.

In late April, Nasdaq President Alfred R. Berkeley III fired off a strong letter to Senate Banking Committee Chairman, Sen. Alfonse D'Amato (R-N.Y.), in support of the Security Traders Association's proposal to slash fees on dealer-to-dealer trades.

Despite some speculation to the contrary, D'Amato maintained that he had not read Berkeley's letter.

Speculation that D'Amato may jump on the issue was fueled by a story in a weekly trade publication saying he was preparing to sponsor legislation. "That report was erroneous," a D'Amato aide told Traders Magazine.

The only official mention D'Amato has made on 31(a) fees appeared in a pro forma letter he sent several months ago to Sen. Peter Domenici (R-N.M.), chairman of the Senate Budget Committee. The letter outlined a number of issues the Senate Banking Committee examined for budgetary implications.

"He hasn't said anything else," said a banking-comASD proposal was "blatantly slanted in favor of a small minority of market makers."

Adminstration Officials

The issue may reemerge when Senate and House budget negotiators huddle with administration officials. If that happens, the president's Office of Management and Budget (OMB) is expected to add its voice. "I expect the OMB will vigorously oppose it," said a House source. "You know, technically it's a violation of the [balanced] budget agreement."

The major Senate stumbling block, as previously reported, remains Sen. Judd Gregg (R-N.H.), who heads the Senate Appropriations Subcommittee, with jurisdiction over the SEC. He is opposed to a fee cut.

A decimal-based U.S. stock system has moved one step closer to becoming a reality perhaps in the summer of 2000 thanks in part to the unrelenting efforts of Rep. Michael Oxley (R-Ohio) and Rep. Edward Markey (D-Mass.).

Holding a new General Accounting Office (GAO) report in one hand and a ream of letters from four exchanges, the National Association of Securities Dealers and the Securities and Exchange Commission in the other a triumphant Oxley announced at a Capitol Hill hearing that opponents of decimalization have been brought to their knees.

"With this, we will have completed our goal of bringing competition to stock pricing, modernizing the markets to the benefit of all investors," said Oxley, chairman of the House Commerce Subcommittee on Finance and Hazardous Materials.

Experts Agree

Many industry experts now agree that U.S. stock exchanges will switch from fractions to quoting stock prices in decimals sometime in 2000. The SEC is hoping for a July 2000 switch. September 2000 was the target date agreed upon during a private Feb. 27 meeting by a working group of equity and derivative market representatives in Washington.

The New York Stock Exchange said it is on target to quote in decimals by year's end. The Cincinnati Stock Exchange is planning to be ready by April 1999. And the Pacific Exchange said it will have all necessary systems finished by the end of September 1999.

The NASD and the American Stock Exchange appear to be dragging their heels. The NASD said it is committed to being ready in early 2000, while the AMEX is committed to a conversion in September 2000.

Technology Adjustments

The GAO report noted that the technology adjustments necessary to support a decimal-based pricing system are straightforward and relatively inexpensive. A study by the Newton, Mass.-based Tower Group, commissioned by the Securities Industry Association, estimated the systems changes at almost $170 million.

However, the report concedes that the technology concerns about Year-2000 computer remediation and the 1999 conversion to a single currency in much of Europe pose substantial barriers to decimal trading before 2000.

SEC Chairman Arthur Levitt, in a May 8 letter, stressed that the move to decimals is essential for keeping U.S. markets competitive with foreign markets.

But Levitt warned that a move in advance, or simultaneously, with Year-2000 testing would be imprudent. In addition, firms are working to comply with the NASD's Order Audit Trail System and the European currency switch.

The SIA is coordinating industry-wide conversion efforts, and legislators plan to study the SEC oversight of the massive project.

Common Cents

Oxley and Markey, with House Commerce Committee Chairman Rep. Thomas Bliley (R-Va.), began a legislative drive to mandate decimalization when they introduced the Common Cents Stock-Pricing Act last year. Passage of the bill would be moot if the industry itself moves voluntarily to a decimal system.

The Security Traders Association said it is pleased with the current developments. "I think all market participants are committed to producing the most competitive prices for investors, and we are convinced that competitive forces will ultimately produce the most competitively-priced markets, which is Oxley's objective," John N. Tognino, president of the STA, told Traders Magazine.

The National Association of Securities Dealers has approved a new set of proposals that would increase the responsibilities of brokerage firms that quote small, thinly-traded stocks.

On May 7, the NASD board of governors voted to require broker dealers to review and disclose financial information before recommending a non-Nasdaq, over-the-counter security.

The new rules are subject to approval by the Securities and Exchange Commission.

Broker dealers, meanwhile, worry that the new rules would unfairly place responsibility for company information on trading desks, instead of on issuers, who are the primary source of information.

Currently, only the broker dealer initially quoting an OTC stock is required to review an issuer's financial data. Updates are not required.

"Market makers should not be held responsible for a company's information because they trade that stock," said Nicholas Ponzio, managing director at Hill, Thompson, Magid & Co. in Jersey City. The firm is a leading OTC market maker, covering more than 4,500 issues.

"If firms are held liable, it would be too cumbersome to make markets in small-cap stocks," Ponzio added.

The rules would not apply to stock transactions in banking and insurance companies, and to companies with more than $100 million in assets and $10 million in shareholder equity. Transactions with institutional customers would also be exempt from the new rules.

At the same time, the NASD approved a rule permitting only those companies reporting current financial information to the SEC and insurance and banking regulators to be quoted on the OTC Bulletin Board. Companies would be allowed up to 12 months to comply with the new requirements.

The NASD proposals coincide with a separate SEC initiative to reduce OTC stock fraud.

The OTC market, including the OTC Bulletin Board and the pink sheets, is generally perceived to harbor some questionably-listed companies.

The OTC Bulletin Board, although owned by the NASD, is not held to the regulatory agency's listing standards. The pink sheets are owned and operated by the New York-based National Quotation Bureau.

Through the end of May, the NASD had received more than 60 comment letters on the proposal, according to an NASD spokesman.

Lynn Turner was named chief accountant of the Securities and Exchange Commission in Washington. Turner, who will oversee the accounting issues facing accountants, corporations, investors, and regulators, is a former audit partner at accounting giant Coopers & Lybrand in Denver. Most recently, he was chief financial officer at Symbios Logic in Denver. The SEC had been searching for a new chief accountant since the resignation of Michael Sutton in December.

George K. Baum & Company in Kansas City hired Frank Calta as managing director of equity trading. Calta was previously managing director of institutional trading at Dain Rauscher Wessels in Minneapolis.

John C. Katovich, general counsel and director of public affairs at the Pacific Exchange in San Francisco, joined the growing staff of OptiMark Technologies. Katovich, as co-general counsel, will provide legal advice to OptiMark's board of directors while overseeing regulatory developments affecting the company. He will be based in the San Francisco Bay area.

Robert Race joined Winchester Investments in Overland Park, Kan. as an equity trader. Race was previously an equity trader at Birchtree Financial Services in nearby Kansas City.

Dresdner Kleinwort Benson North America named Joe Scafidi its U.S. head of U.K. and European equity trading. He was previously director of European trading at Deutsche Morgan Grenfell in New York.

Fidelity Investments named John F. McNamara chairman and president of its Boston-based subsidiary, Fidelity Management Trust Company. McNamara, the former chief operating officer of United Asset Management Corp. in Boston, succeeds Denis M. McCarthy, who retired from Fidelity on April 30.

PaineWebber named Robert Clark director of recruiting. Clark was previously director of marketing at the New York-based firm. In his newly-created position, Clark will be responsible for outlining infrastructure developments with PaineWebber branch managers.

William O'Shea was appointed general manager of New York-based CSK Software's trading-systems business. He will continue in his previous role as the firm's chief operating officer. CSK Software provides global financial-information technology for its Tokyo-based parent, CSK Corporation.

Robert A. Tominovich, president and chief executive of Standard & Poor's Securities in New York, retired after 31 years of service at the firm. He had been the firm's top officer since 1982.

Richmond Fisher was named as Tominovich's successor. Fisher was most recently vice president of sales and marketing at Standard & Poor's Securities.

Goldman, Sachs & Company, which is traditionally run by two leaders, named Henry M. Paulson Jr. its co-chairman and co-chief executive. Paulson was previously the private New York-based firm's president and chief operating officer. Paulson will work alongside Jon S. Corzine in his new position.

Fred Busk III was promoted to general manager and the board of directors of the Bank of Bermuda in New York. He had formerly served as the head of business development and marketing for the bank's corporate trust services in the Western Hemisphere.

The National Association of Securities Dealers elected Arthur Rock to its board of governors, replacing Bridget A. Macaskill. Rock, principal of San Francisco-based venture-capital firm Arthur Rock & Co., will serve on the board for the remainder of the year to fill the unexpired term of Macaskill. Macaskill is president and chief executive of the Oppenheimer Funds in New York.

J. Patrick Campbell was named to the newly-created position of chief operating officer at Nasdaq. Campbell was previously Nasdaq's executive vice president of market services. Based in Washington, he will report to Frank Zarb, chairman and chief executive of the National Association of Securities Dealers, and Alfred R. Berkeley III, Nasdaq's president.

Zarb also announced the expansion of the NASD office of the chairman to include: George S. Bailar, NASD chief information officer, John L. Hilley, NASD executive vice president of strategic development, Salvatore F. Sodano, NASD deputy COO, Elisse B. Walter, NASD Regulation chief operating officer, and Campbell.

Nasdaq traders are hitting the books for the National Association of Securities Dealers' new Series 55 equity-trader examinations.

As of April 1, Series 55 accreditation is required for Series 7 and Series 62 licensed representatives who trade in Nasdaq and non-Nasdaq over-the-counter securities.

"It is a brand new exam, and it's not going to be easy for market makers," warned Paul Weisman, president of Securities Training Corporation, a New York-based provider of securities, banking and insurance training programs, that include the Series 55.

The 90-question examination tests traders knowledge in four areas: Nasdaq and market-maker activities, automated execution and trading systems, trade-reporting requirements and securities-industry regulations.

Veterans had until May 15 to submit exemption forms to regulators, allowing them up to two years to sit for the examination. Rookies, on the other hand, must sit for the test within 90 days of filing the appropriate papers, the same period allowed veterans who miss the May 15 deadline. Traders who fail the exam have up to three more tries separated by 30-day waiting periods, with a further six-month waiting period after the third failed attempt. New York-based

Sylvan Learning Centers is conducting the examinations under contract with the NASD.

Peter B. Madoff, senior managing director at New York-based third-market trading giant Bernard L. Madoff Investment Securities, has been awarded one of the highest honors bestowed by his alma mater.

Madoff shared the limelight at the annual awards ceremony June 11 at New York's Marriott Marquis Hotel with another successful Queens College alumnus, Eugene F. Murphy, vice chairman of the board and executive officer at General Electric Company.

Madoff and Murphy each accepted a prestigious Q Award, which recognizes leaders whose personal qualities and achievements set a standard of excellence for Queens College students.

Madoff is a past president of the Security Traders Association. He is a former vice chairman of the National Association of Securities Dealers' board of governors, and served on the executive committee and board of governors of Nasdaq. He is past chairman of the NASD District 10 Business Conduct Committee.

Madoff currently serves as a member of the board of governors and the executive committee of the Cincinnati Stock Exchange, and is a member of the NASD Industry Advisory Committee for Technology. He is also a member of the bar of the State of New York.

The Securities and Exchange Commission named Columbia University law professor Harvey J. Goldschmid its new general counsel.

Goldschmid succeeds Richard H. Walker as the SEC's top lawyer. Walker was recently named the commission's enforcement director, which is widely considered the second most important position at the SEC, after that of chairman.

As general counsel, Goldschmid will be the chief legal officer for the SEC. The general counsel advises the SEC on the legality of its policies and procedures. Goldschmid's office will represent the commission on all actions pending in appellate courts, and advise commissioners on enforcement and rule-making issues. He is expected to join the SEC in July.

"Harvey will be a superb general counsel," said SEC Chairman Arthur Levitt Jr., in a prepared statement. "The breadth of his legal knowledge will be a tremendous asset."

Goldschmid, who has been a Columbia professor since 1970, is also a counsel at Arnold & Porter, a Washington-based law firm.

Goldschmid was a candidate for appointment as an SEC commissioner last year, but was opposed for his past criticism of class-action lawsuits.

The interim general counsel, Colleen P. Mahoney, will return to her position as the SEC's deputy enforcement director in July.

Only 12 months after San Francisco's BankAmerica purchased Robertston, Stephens & Co. for $540 million, it is selling the investment-banking firm for an estimated $800 to BankBoston Corporation.

Robertson Stephens had been on the block since BankAmerica announced in April its $59 billion merger with Charlotte-based NationsBanc Corp.

The investment bank was uncomfortable with the merger between its parent and NationsBanc, which owns Montgomery Securities, a Robertson Stephens competitor. Nationsbanc acquired Montgomery last July for $1.2 billion.

It was widely rumored after the merger announcement that the two investment banks, both specializing in healthcare and technology research and based in San Francisco, would not compete as affiliated outfits.

The price being paid for Robertson Stephens will include a $400 million cash payment by Boston-based BankBoston, an additional $300 million paid over four years and $100 million in stock options at market price.

Robertson Stephens will still be based in San Francisco, and will be folded into BankBoston Securities. The firm will be renamed BankBoston Robertson Stephens.