The Nasdaq stock market said it will unveil a revised plan Monday for handling small investors' orders--giving them more favorable treatment--in hopes that the changes will satisfy objections by the Securities and Exchange Commission.
In a firm rebuke to Nasdaq, the SEC in January rejected the market's original plan, a system dubbed N-Prove, because of concerns that it heavily favored Nasdaq dealers over small investors.
Full details of the changes were not disclosed Friday. But sources said they center on giving customers a chance to get prices better than those offered by dealers, in part by increasing the likelihood that customer "limit orders"--orders to buy or sell at a price specified by the customer--will get filled.
Under Nasdaq's current trading system, limit orders often are held by the customer's brokerage firm and are not exposed to the many other market participants. The brokerage firms and other dealers typically fill these limit orders only if the market price of the stock happens to match the price specified in the limit order. So customers miss out on the chance to get a price inside the typically wide spreads in Nasdaq stocks.
Spreads, essentially dealers' profit margins, are the gap between the "bid" price at which a dealer is willing to buy stock and the higher "offer" price at which the dealer is willing to sell.
Sources said the revised plan will call for a limit order to be exposed to more than one dealer if it is not filled immediately.
Nasdaq has been scrambling to come up with a revised plan, consulting intensively in recent weeks with member firms that are market makers, the Nasdaq term for dealers.
The market is the subject of an antitrust investigation by the Justice Department and a separate investigation by the SEC. Both are looking into allegations that Nasdaq market makers colluded to keep spreads wide. These and other allegations of wrongdoing--including falsely reporting trades and failing to honor quoted prices--were detailed in a series in The Times in October.