Meeting Will Focus on Ways to Curb Nasdaq Volatility
Securities firm representatives will meet in New York on Monday to discuss ways to reduce Nasdaq volatility, part of an effort to assess a trading environment that has led to 50-point daily swings in some stocks.
The meeting, coordinated by the National Assn. of Securities Dealers, which governs Nasdaq, will include 10 officials from big market makers, electronic trading networks and broker-dealers. The meeting will deal only with Nasdaq stock market volatility.
“There’s a [speculative] bubble out there that’s 10 times as big as anything I’ve ever seen,” said Ken Pasternak, a trader for almost 25 years and president of No. 1 Nasdaq market maker Knight/ Trimark Group Inc., who plans to attend the session. “Something will come out of this--I hope it’s quick enough to prevent a panic at the fire exits.”
Also planning to attend are Bernard Madoff, president of the broker-dealer firm that bears his name and president of the Securities Industry Assn.’s trading committee; E.E. “Buzzy” Geduld, president of market maker Herzog Heine Geduld Inc.; and Jeff Citron, president of Datek Online Holdings Corp., which owns an electronic trading network and an online brokerage.
The committee also includes representatives of securities firms Merrill Lynch & Co., Goldman, Sachs & Co. and Morgan Stanley, Dean Witter & Co.
The meeting will focus on ways to curb intra-day volatility, said NASD spokesman Michael Jones. He declined to comment further.
Pasternak said he’ll propose that market orders--orders to purchase or sell a stock at the market price whenever the order is filled--be banned before trading begins in initial public offerings. Also, Nasdaq trading in a stock should be halted when large order imbalances exist in “fast markets,” Pasternak said. “Every exchange has order imbalance procedures--why shouldn’t the Nasdaq?”
While trading halts might make sense for some customers of online brokerages, Citron said he “personally” is against them. “Is it really much more volatile trading than it’s ever been? If 15 stocks get crazy, you don’t write an entire exchange’s policy for 15 stocks,” he said.
Citron said he doubts that any regulatory changes will result from the committee’s work, though he plans to propose ways to increase liquidity. Electronic trading networks such as Datek’s Island ECN Inc.--the No. 2 off-exchange, order-matching network after Reuters Group’s Instinet--should be allowed to show “the depth of their order book,” meaning their entire list of orders, sorted by price.
Showing multiple quotes means buyers or sellers in fast-trading stocks wouldn’t need to panic and agree to a trade at the first quote they see, Citron said.
