Wall St. Weighs Auction Market in NYSE Stocks

Competitive pressure on the New York Stock Exchange ratcheted up Wednesday as the Securities and Exchange Commission approved a rule making it easier for electronic rivals to trade NYSE-listed stocks, and the Nasdaq Stock Market was said to be considering a plan to start a new market to trade NYSE securities.

Nasdaq might team with Wall Street’s largest brokerages in an electronic auction market for NYSE stocks, people knowledgeable about the plan said.

The proposal, to be reviewed today by the board of the National Assn. of Securities Dealers, seeks to capitalize on the NYSE’s move last week to permit all its stocks to be traded in other markets.

The NASD plan provides for an alliance between Nasdaq and Primex Trading, a new company that expects to offer anonymous electronic trades in both NYSE- and Nasdaq-listed stocks starting midyear to late 2000, the sources said.

Primex is owned by Merrill Lynch & Co., Goldman Sachs Group Inc., Morgan Stanley Dean Witter & Co., Citigroup Inc.’s Salomon Smith Barney, and Bernard L. Madoff Investment Securities.

“This could be a powerful competitor to the New York Stock Exchange,” said David Whitcomb, president of Automated Trading Desk, a Charleston, S.C., trading firm.

Junius Peake, a University of Northern Colorado finance professor, said a “key to a market’s success is its ability to attract investors’ order flow, and the firms behind Primex have a huge share of these orders.”

As expected, the SEC took steps to help smaller U.S. markets and electronic networks compete against the Big Board.

“As we enter a new century, our markets must not be fettered by impediments or anti-competitive practices that stand in the way of our markets’ own natural genius,” said SEC Chairman Arthur Levitt. “Today’s initiatives will further clear that path by removing certain obstacles to greater inter-market competition.”

The SEC voted to give NASD member firms access to trade all NYSE securities through a market-linking system known as Intermarket Trading System. The five commissioners also proposed changing rules that prohibit regional exchanges from trading NYSE-listed initial public offerings until after the first day of trading, and they issued for comment a report that could be a first step toward changing market-data fees that exchanges charge.

“The initiatives all go in the direction of enhancing competition, which is good for investors,” said Columbia University law professor John Coffee.