Small-Customer Plan Expected to Get NASD Nod : Trading: Nasdaq system would give investors more opportunities to get better prices. The SEC is not likely to approve it any time soon, though.

The operators of the Nasdaq stock market are expected today to endorse a controversial new system for handling small-customer orders, even though the Securities and Exchange Commission has signaled it is unlikely to approve the plan any time soon.

The board of governors of the National Assn. of Securities Dealers, meeting in Bigfork, Mont., also is scheduled to approve new standards holding brokers accountable for government securities they sell to institutional customers, including municipalities. The standards make clear that brokers have some responsibility to avoid selling securities that may be too risky for their clients’ needs.

The NASD has hailed the new system for handling small orders, N.Aqcess, as an improvement that would give small investors more opportunities to get better prices when buying or selling Nasdaq-listed stocks.

But NASD Chief Operating Officer Richard G. Ketchum has confirmed that the proposal has been changed under pressure from big Nasdaq dealers. And SEC officials are said to be concerned that the new system may provide inadequate protection to investors.

The NASD’s plans to replace its current system, the Small Order Execution System, or SOES, have gone through a number of permutations this year since the SEC effectively killed an earlier plan in January. Critics say the changes show the NASD’s difficulties in satisfying both the SEC’s regulatory concerns about protecting investors and the demands of big Nasdaq dealers--the NASD’s most powerful members--which are anxious to maintain their steep profits from Nasdaq trading.

The Times reported last week that the SEC is working toward filing disciplinary charges against the NASD as early as September for failing to crack down on widespread violations of trading rules, although the investigation has not yet been finalized. The NASD has said it is not aware of any pending charges, adding that it has supervised Nasdaq trading conscientiously.

In addition, SEC spokeswoman Jennifer Kimball said last week that the SEC was likely to delay action on N.Aqcess pending the outcome of its investigation and another by the Justice Department’s antitrust division.

“The commission will not be able to judge fairly until some of these issues are resolved,” she said. She later added that the SEC would not make a formal decision on the timing of its review of N.Aqcess until the NASD formally submits it to the SEC.

The NASD is expected to do so immediately after the Montana meeting.

Among the changes from the original proposal for the small order system, first announced in March, are a reduction in the maximum size of customer limit orders that the system will accept. (Limit orders are orders to buy or sell at a price specified in advance.) Under the latest proposal, orders of only up to 1,000 shares will be allowed, instead of 3,000 under the earlier proposal.

In addition, the plan changes the way ordinary market orders--orders to buy or sell immediately at whatever the market price happens to be--are allocated among Nasdaq dealers.

In an interview two weeks ago, Ketchum said the revised plan calls for market orders to be doled out in succession to each of the dealers in a stock who are offering the best quoted price, much like cards being dealt around a table. However, the plan would allow dealers 15 seconds to reject an order if they had already filled another order from outside the N.Aqcess system at that price and were in the process of changing their quote.

Critics have said the 15-second window will give dealers too much opportunity to illegally fail to honor their quoted prices, a practice known as “backing away.” Backing away is one of the alleged rule violations under investigation by the SEC. Ketchum said the NASD would vigorously police the N.Aqcess system to make sure that dealers didn’t back away.

When it first proposed the plan in March, the NASD called it Aqcess, but it was forced to add an “N” after the New York Mercantile Exchange protested. The Nymex has an after-hours trading system called Access.