Nasdaq regulators criticized Reformers hasty, says head of brokers group


Federal securities regulators should take measured steps in their efforts to restructure Nasdaq Stock Market Inc. and its parent company, the chairman of a nationwide association representing 7,000 securities brokers told a group of traders in Baltimore yesterday.

William R. Rothe, chairman of the Security Traders Association and head of Alex. Brown Inc.'s Nasdaq trading, said he worries that if the Securities and Exchange Commission succeeds in overhauling the nation's second-largest market too quickly, Nasdaq could become a "second-rate auction market."

"I would hope regulators in Washington won't say we have to destroy the Nasdaq Market in order to save it," Mr. Rothe said.

"Hopefully, sane heads will prevail and slow down the freight train that is heading down the hill at a spectacular rate of speed."

Mr. Rothe spoke to about 50 members of the Baltimore Securities Traders Association at the Hyatt Regency on the Inner Harbor.

The group, which has about 300 members, kicked off its 61st midwinter conference yesterday.

Nasdaq and its parent, the National Association of Securities tTC Dealers Inc., have been under intense pressure from both the SEC and the U.S. Justice Department.

Fifteen months ago, the Justice Department began investigating large brokerage companies that buy and sell Nasdaq stocks.

The agency is trying to determine whether these firms, known as "market makers," conspired to keep spreads wide between the bid and asking prices of stocks so they could make more money.

Following the Justice Department's lead, the SEC began investigating the NASD's enforcement of Nasdaq trading rules.

According to news reports, the NASD failed to enforce trading rules that require dealers to honor prices on Nasdaq stocks they quote publicly.

Arthur Levitt Jr., the SEC chairman, also pressed the NASD to reform.

An SEC spokesman declined to comment yesterday on the agency's investigation.

Meanwhile, the NASD, which owns, operates and regulates Nasdaq, has created its own committee, which has suggested sweeping reforms that were recently approved by the NASD board.

The reforms, in part, would create two separate units, one to regulate Nasdaq and another to regulate brokers.

Mr. Rothe, a former NASD director, said changes at Nasdaq should take place in an "evolutionary environment."

"The NASD is considerably under the gun," he said.

"I would hope that we do not charge forward with revolutionary change."

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