Nasdaq to Expand Trading Plan

The Securities and Exchange Commission on Friday approved an expansion of a controversial pilot project that allows dealers on the Nasdaq Stock Market to quote fewer shares in each transaction.

Dealers will be able to trade a minimum of 100 shares at a time, rather than 1,000, on 150 companies’ stocks, starting about Nov. 10. The initial phase of the pilot, which began in January, reduced the minimum quote size on 50 stocks.

Nasdaq, the nation’s second-largest stock market, is seeking to encourage dealers to trade in as many different securities as possible. Dealers, also known as market makers, commit capital to buy and sell stocks for investors. Nasdaq argues that dealers are more willing to make markets in stocks when they don’t have to risk as much capital.

The SEC, in approving the Nasdaq proposal, agreed.

“The proposed rule likely will produce more accurate and informative quotations and encourage market makers to maintain competitive prices,” the commission said.

The second phase of the pilot is to extend until March 27, when it will be reevaluated by the SEC. Frank Zarb, chairman of the National Assn. of Securities Dealers, which runs Nasdaq, has said he intends to extend the project to all 6,000 Nasdaq stocks.

Chris Block, chairman of Block Trading in Houston, added, “I like the 100-share rule. It makes no sense to force a market maker to do something he doesn’t want to do.”

Nasdaq studies found that the initial phase of the pilot had no effect on stock volatility or liquidity.

“We’ve found it gives investors a truer picture of the market without the artificial regulation,” said Nasdaq Executive Vice President Patrick Campbell.

The pilot began in January as Nasdaq started to phase in the SEC’s new order-handling rules, which seek to give investors access to the best available prices and foster competition.

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