Nasdaq Proposes Trading Limit
The Nasdaq stock market is proposing a special rule to control volatile computerized trading in stocks mentioned on the daily broadcasts of financial journalist Dan Dorfman.
The Nasdaq proposal is the third time a financial market has proposed a rule aimed at controlling trading volatility due to the influential broadcasts of Dorfman, the controversial commentator on the financial news cable channel, CNBC.
The fact that Nasdaq, now the nation’s second-largest stock market, would propose such a rule speaks to Dorfman’s influence in the trading community.
Each day at 12:36 p.m. EST on CNBC, Dorfman dispenses a melange of tips and gossip about corporate takeovers, changes in the executive suite and other financial news. Traders in the stock, options and futures markets watch Dorfman’s broadcasts closely and respond by heavy trading in the securities of companies mentioned in the broadcast.
In the fall, the Chicago Board Options Exchange proposed a rule aimed at controlling trading in options of stocks mentioned by Dorfman. The Chicago Stock Exchange made a similar rule change in 1994.
Under the Nasdaq proposal, the market surveillance department chief could temporarily suspend trading in a computerized system for small orders involving stocks mentioned by a “well-known, recognized and influential stock analyst or financial commentator.” Nasdaq spokesman Marc Beauchamp said the rule was aimed at Dorfman.
The proposal has been submitted to the Securities and Exchange Commission for approval.
Dorfman was not available at his CNBC office early Thursday evening. In an interview in the fall about the Chicago Board Options Exchange proposal, Dorfman said he thought such trading limits made good sense if they limited trading volatility.
Separately, the SEC has been investigating Dorfman and his relationship with a stock market promoter who supplied tips to the commentator.
The rule would affect trading in Nasdaq’s Small Order Execution System, or SOES, a computerized order entry system that handles about 5% of the trades on Nasdaq.
The proposal is controversial because it would only affect SOES and not other Nasdaq trading systems. SOES was created in the wake of the 1987 market crash to handle small-investor orders in periods of heavy market volatility.
