The financial markets have had a somewhat uneven time the last two years, but the Nasdaq Stock Market may be experiencing the rockiest time of all. After a decade of playing catch-up, the computerized exchange that edged past rival New York Stock Exchange in total and daily share volume for 1994 has hit a snag, Nasdaq’s explosive growth has been fueled by the three-year bull run in its small and medium-sized companies, plus 445 initial public offerings in 1994. But credit also goes to Joseph Hardiman, president of the National Association of Securities Dealers-which runs Nasdaq-and former chief operating officer of Alex. Brown & Sons, a
So convinced is Hardiman of the efficacy of electronic systems that he is pouring $270 million into new mainframes and software to handle trading volumes, which are projected to triple over the next decade, In addition, he travels as far afield from his Washington headquarters as India and China to advise on setting up electronic exchanges.
Nasdaq touts its electronic “screen-based” trading system as less costly, especially for institutional investors. Nasdaq’s 501 market makers post bid and ask prices via computer. The NYSE claims that its floor exchange, where one specialist handles all the trades in a given stock, treats small investors more fairly, because it eliminates intermediaries who take a cut of the spread between the buy and sell prices. Says Hardiman of his rival’s manual system: “It will be its albatross. We’re helping shape the capital markets of the future by encouraging the start of screen-based markets. Eventually, we’ll all be networked.”
However, electronic systems have their disadvantages as well, The Securities and Exchange Commission recently turned aside Nasdaq’s proposal to put its innovative N€.Prove system online, and will revisit it only when other investigations of the exchange have been completed. What problems have piqued the SEC’s interest? The Justice Department has launched an inquiry concerning alleged collusion in maintaining price spreads, and some Nasdaq dealers are defendants in investor suits that allege unfair pricing. The exchange also has suffered from poor management of these crises, all of which have added to deteriorating relationships with several outside client firms.
Nevertheless, Hardiman remains committed to Nasdaq’s way of doing business: “We must indeed, we will preserve, protect, and defend the reputation of our market and those who make it work so well. The first step to doing so is making sure that reputation is deserved. This means we will continue to respond in ways that foster investor confidence and enhance capital formation. To do anything less would be to fall short.”