Rivalry Heats Up Among Players in the Securities Markets

The nation’s major securities markets, which for years have largely refrained from competing directly with one another, are being drawn into a free-for-all in which they’re suddenly scrambling to steal each other’s business.

The latest examples of that trend came Friday when the Nasdaq Stock Market said it will take steps to trade some New York Stock Exchange stocks and, separately, the Chicago Board Options Exchange said it will list popular options that were previously the domain of the Pacific Exchange.

The bare-knuckles rivalry reflects the extent to which advancing technology and the onslaught of individual investors are transforming the structure of the stock and options markets.

Securities markets make money by “listing” certain stocks or options, and therefore being the primary venue through which those securities are traded. For years, for example, the NYSE has dominated trading of IBM, while Nasdaq has been the home of Microsoft and Intel.

But a battery of electronic trading systems has emerged in recent years to compete for trading business, forcing the long-standing markets to raid others’ turfs.

“The gloves are off, the clubs are out and we have a very different world,” said Junius Peake, a finance professor at the University of Northern Colorado.

Nasdaq said it will file with the Securities and Exchange Commission by the end of October to register as a formal stock exchange instead of its current status as a trading “facility.” Though the distinction is largely semantic, exchange status would give Nasdaq the ability to trade certain NYSE-listed stocks such as IBM and AT&T.;

The NYSE, meanwhile, has discussed buying one of the upstart electronic networks to give it entree to Nasdaq stocks.

The NYSE and Nasdaq are both contemplating plans to sell shares to the public to raise capital to compete against the new electronic systems.

Eventually, all the changes are expected to lead to a more unified market that trades 24 hours and around the globe.

Experts, however, are split on the immediate impact on individual investors.

Some say the multiple listings will “fragment” the markets and make it difficult to find the most favorable prices when trading securities. Theoretically, if stocks are traded in two markets, an investor placing an order in one market may not know if a better price exists in the other.

“They are building competing air-traffic controllers at the same airport,” Peake said.

Other experts, however, argue that increased competition among markets should boost trading volume and lead to tighter spreads between the buy and sell prices of stocks and options.

“It’s a pain in the neck for people who want one-stop shopping in their trading, but the marketplace works better” with competition, said David Whitcomb, a Rutgers University finance professor.

The rivalry among the options exchanges broke into the open last week when the CBOE unexpectedly announced that it will list options on Dell Computer, which previously was handled by the Philadelphia Stock Exchange. The PSE retaliated by listing options of the CBOE and the American Stock Exchange.

For years, the options markets abided by a gentlemen’s agreement to steer clear of each other’s business, experts say. But as in the equity markets, the options exchanges also face pressure from an electronic marketplace, in this case the planned International Securities Exchange.

The Pacific Exchange, with trading floors in San Francisco and Los Angeles, stayed out of the fray last week, but was drawn in when the CBOE said it will list options on 29 stocks, including Microsoft and other popular Pacific listings. The Pacific struck back Friday, announcing plans to list 24 options traded on the three rival exchanges, including General Electric and Intel, starting Tuesday.

“It’s become an open-field brawl,” said Pacific spokesman Dale Carlson.