AT A TIME WHEN champagne corks should be popping at the National Association of Securities Dealers Inc.'s offices on K Street in Washington, a gray cloud hangs over the organization.
Nasdaq Stock Market Inc., which is owned, operated and regulated by the NASD, is celebrating its 25th year in business while the Justice Department is investigating Nasdaq dealers for alleged price fixing.
What's more, the NASD is undergoing a major internal restructuring prompted by criticism from the Securities and Exchange Commission.
And its own investigators are probing Sylvan Learning Systems Inc.'s sudden stock jump, which occurred shortly before the company said it would provide computerized testing services to the NASD.
All of this comes at a time when the fastest-growing stock market in the country has the throttle opened wide.
"I am not only impressed, I continue to be surprised at our own success," said Joseph R. Hardiman, president and chief executive of the NASD and the Nasdaq Stock Market.
"We had not planned to be where we are until 1997."
Nasdaq's growth and performance have been a spectacle to behold.
Dollar volume, or the value of all stock trades, soared to $2.39 trillion in 1995, up from $43 billion around the time the market first opened.
Share volume, or the number of shares traded, has hit 101.2 billion, outpacing all other U.S. stock markets.
And the number of domestic companies listed on the exchange has jumped to 5,120, up from about 2,800 in 1971.
This all means hefty returns for the average investor.
A $10,000 investment in the Nasdaq Composite Index in 1971 is worth about $109,000 today.
Nasdaq is benefiting from the flood of money into the stock market from mutual funds, pension funds, and investors' desire to own some of the country's hottest and most exciting technology, information, cable and health care companies.
Nasdaq is home to such high-tech and communications heavy hitters as Microsoft Corp., Intel Corp. and MCI Communications Corp.
"Our companies are the companies that are driving today's economy," said Mr. Hardiman, who joined the organization in 1987, after leaving Alex. Brown Inc. as managing director and chief operating officer.
"They are the heart of the new economy in the United States."
In the beginning, Nasdaq stocks were traded through an
archaic system called a desktop device, which listed the stock quote and the broker's phone number.
Today, after a $700 million investment in systems over the past 10 years, Nasdaq connects 512 market makers and is capable of trading millions of shares a day without a hitch.
On Jan. 4, Nasdaq traded a record 630 million shares.
The market doesn't have a trading floor like the New York Stock Exchange.
Rather, it connects dealers through its nationwide and international computer system.
"We have brought the capital markets closer to companies that are located throughout the United States and throughout the world," Mr. Hardiman said.
Nasdaq's popularity ride hasn't come without bumps.
In the fall of 1994, the Justice Department began investigating a group of large brokerage firms that buy and sell Nasdaq stocks.
The companies allegedly conspired to keep the spreads between the buy and sell price artificially high to increase their profits.
"To date, we haven't seen any evidence of collusion," Mr. Hardiman said.
"We are not a party to those matters."
Around the same time, the Securities and Exchange
Commission began looking into allegations that Nasdaq trading practices hurt small investors and violated federal securities laws.
The NASD reacted by forming a committee led by former U.S. Sen. Warren B. Rudman of New Hampshire to give the company a top-to-bottom review.
Last month, the NASD was embarrassed when Sylvan Learning Systems' stock shot up 8 percent less than two hours before the Columbia-based company announced that it had won a contract to provide the organization with computerized testing services.
Mr. Hardiman wouldn't comment on the Sylvan investigation, but he said, "We have numerous investigations which are investigations based on trading anomalies."
"Neither one of these puts a damper on our 25th anniversary," said Mr. Hardiman, who noted that a big celebration isn't in the works.
Despite the controversy, Nasdaq seems to have maintained the public's confidence.
"Thus far, just from the numbers, you can say it really hasn't hurt our image that much," Mr. Hardiman said.
"Investors are much more concerned with the quality of the companies," he said, "and the returns they are getting on their investments."