In cost-efficiency drives in the last two years, some large Nasdaq market makers dropped thinly-traded stocks, citing shrinking profitability since the introduction of the order handling rules. Most of these stocks are still traded, however, often by smaller regional firms that specialize in the issues.
But could some stocks, the blue-chips included, be temporarily suspended from Nasdaq because of incomplete disclosure in its regulatory filings?
The possibility is not too far-fetched, according to some experts. Blame the Year-2000 bug.
That's because some publicly-traded companies are dragging their heels on Year-2000 compliance, sitting atop computers not equipped to correctly process data in the new millennium.
The upshot is that broker dealers, if not NASD Regulation the regulatory unit of the National Association of Securities Dealers could start dropping or delisting stocks that are not Year-2000 compliant.
A Capitol Hill hearing June 10 on the Year-2000 problem convened by Sen. Robert Bennett (R-Utah), chairman of the financial-services and technology subcommittee, made this much clear: compliance officers and securities analysts will be kept busy grappling with the Year-2000 problem.
Some broker dealers will have to beef up their efforts to police against the peddling of stocks with questionable Year-2000 compliance. "I believe that corporations are still not providing their investors with the information they must have to assess the risks these companies face in 2000," Dr. Edward Yardeni, chief economist at Deutsche Bank Securities in New York and an expert on Year-2000 compliance, told Bennett's panel.
Publicly-traded companies are required to include statements about 2000 in annual and quarterly filings with the Securities and Exchange Commission. Yardeni has closely studied the importance of some of these disclosure filings.
Yardeni testified that he strongly disagreed with the stand taken by most corporate managers that Year-2000 compliance is not of material interest, and therefore does not require full disclosure.
To be sure, Yardeni said, the cost of adjusting for 2000 is not material because the money is coming out of current information-technology budgets. "However, the cost of failing to fix the problem could be very material, so investors must be kept informed, on an ongoing basis, about the potential for failure," he warned.
Market Makers
In a telephone interview with Traders Magazine soon after the hearing, Yardeni went on to say that market makers "are in the same position as investors, and should be asking questions about Year-2000 compliance. There is a widespread lack of information being provided."
Yardeni felt that the SEC needs to be tougher on compliance. "My sense is that the SEC is being remarkably passive," Yardeni added. SEC Commissioner Laura Unger, who attended the hearing, shrugged off that suggestion earlier, simply saying, "Traders know the questions they should be asking."
But the real tough questions could come from securities-industry analysts whose jobs are to review company financials. "Market makers don't call companies on earnings reports. It's something a securities analyst would do," one trader fumed in a telephone interview.
According to Yardeni's written testimony in a Worldcom Inc. annual report, the Nasdaq-listed company informed investors that at the moment, "the company believes that the cost of addressing Year-2000 issues is not material to its future operating results or financial position.
"In the event that any of the company's significant suppliers do not successfully and timely achieve Year-2000 compliance, the company's business or operations could be adversely affected."
Worldcom's quarterly Year-2000 statement was identical in scope to its annual report, Yardeni wrote.
"Did management learn anything that should have been disclosed to investors? Worldcom did not mention that it hopes to acquire MCI Communications, which also reports that Year 2000 isn't material, though the company did say it would spend $400 million in 1998 and 1999. MCI also noted that it expects to be compliant on or before Dec. 31, 1999.
