Nasdaq reform pushed by SEC chairman Unusual appearance before NASD board


NEW YORK -- Securities and Exchange Commission Chairman Arthur Levitt Jr. sternly lectured the National Association of Securities Dealers' board Friday about the need to reform the Nasdaq Stock Market, people who were at the closed-door meeting said.

Mr. Levitt warned the NASD board that the SEC was likely to file disciplinary charges against it, sources said.

He brought William McLucas, director of the SEC's enforcement division, to emphasize that the commission was serious about charges that NASD had failed to enforce basic trading rules on Nasdaq.

Sources said Mr. Levitt had asked to make the highly unusual appearance before NASD's board of governors in Washington because of concerns that the reform effort might be faltering.

The NASD board, as expected, approved a major reorganization designed to beef up enforcement and give the public more representation on the boards of the NASD and Nasdaq.

Drawing on recommendations issued in September by an independent committee headed by former Sen. Warren B. Rudman of New Hampshire, the NASD board decided to reconstitute itself so that a majority of its members would not be affiliated with securities firms. And a new regulatory body is being formed that will be independent of the Nasdaq market.

However, during his remarks to the board, the usually soft-spoken Mr. Levitt expressed in what was described as "stern" language concern that the NASD might seek to hand-pick the new boards' members to maintain the securities industry's control over Nasdaq.

People at the meeting said he urged them to select independent members who would work for improvements that would benefit investors.

Although Mr. Levitt did not suggest names, he invited NASD to contact him later for a list of suggestions.

NASD spokesman Marc Beauchamp declined to say if the NASD would seek Mr. Levitt's recommendations for people to name to the new boards.

The SEC and the Justice Department's antitrust division are investigating allegations that Nasdaq dealers colluded to boost their profit margins on trading Nasdaq stocks.

The NASD and dealers have strongly denied price-fixing.

The SEC investigation is also focusing on evidence that NASD failed to enforce basic trading rules that require dealers to honor their publicly quoted prices for Nasdaq stocks and to report trades within 90 seconds of execution.

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