Newspaper article St Louis Post-Dispatch (MO)

Nasdaq's New Trading Rules Should Save Investors Plenty More Competition, Less Collusion Seen

Newspaper article St Louis Post-Dispatch (MO)

Nasdaq's New Trading Rules Should Save Investors Plenty More Competition, Less Collusion Seen

Article excerpt

The new rules aimed at giving customers a better deal on the Nasdaq Stock Market are dramatically reducing trading costs. One rough estimate shows the savings ranging from $1.5 million to $2.5 million a day, according to an Associated Press analysis of 50 Nasdaq stocks covered by the new rules.

That figure represents a reduction in the "spreads" in these stocks - the gap between the best buy and sell prices - from the last week before the new rules went into effect to the first three days of trading with the rules.

This key measure of trading costs is shrinking due to new Securities and Exchange Commission rules that are supposed to improve competition on Nasdaq and halt collusion among large stock traders that government investigators uncovered last summer. The SEC and Justice Department found major Nasdaq dealers were keeping buy and sell prices artificially wide, which inflated the firm's trading profits. The AP's estimate helps explain the magnitude of changes on Nasdaq and how they stand to affect the pocketbooks of millions of investors who either own stocks of companies such as Microsoft Corp. or Intel Corp. or mutual funds that invest in technology stocks. William Christie, a Vanderbilt University professor who co-wrote a study on Nasdaq trading costs, said he wasn't surprised at the size of the estimated savings. "Those trading profits were overly inflated before, so the reduction is going to be large," Christie said. Christie and other economists interviewed said the AP's estimate was in the ballpark, and warned that figuring out exactly how much investors are saving is tricky business. While spreads are important in discerning the cost of Nasdaq trading, th e estimate doesn't include other important elements, such as the better prices large orders can get through negotiated trades or the ease with which the market can absorb large orders without sending prices in a tailspin. The AP's study also measures average prices and average volume, so it doesn't necessarily capture the exact price of an individual trade. …

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