Dealers will certainly be the big winners if Nasdaq's proposed limit-order facility is approved. They would regain priority over customer limit orders and establish a cheaper alternative to Instinet or Bloomberg Tradebook.

Institutional limit-order traders, however, would have a disincentive to use the system, and retail limit-order traders would find that many of their orders would go unfilled unless the market moves against them.

The limit-order facility, the centerpiece of a new integrated order-delivery and execution system, proposed and filed for approval with the Securities and Exchange Commission by the National Association of Securities Dealers, would create a central location where limit orders could be stored and prioritized by price and time. (The system was originally dubbed Next Nasdaq).

Like Instinet, the identity of the trader would not be revealed in the limit-order facility until the trade is executed. Institutions don't want to trade through dealers for fear of being front-run. On the other hand, dealers don't want their identities revealed until they have the chance to unwind positions they have taken.

At the moment, the main users of Instinet are Nasdaq dealers seeking anonymity they cannot obtain elsewhere. Last fall, another dealer market, the London Stock Exchange, instituted a limit-order facility. The evidence thus far indicates that the majority of the volume in that system is generated by dealers who have switched from other dealer-messaging systems.

The same should be more than true about the new Nasdaq facility. While dealers would find the new Nasdaq system a cheaper alternative to Instinet, institutions would probably remain on Instinet because of the Nasdaq system's live-quote rule.

That rule means that orders placed on the new system can't be canceled in the ten seconds following the order's entry. This would act as an effective deterrent to institutional usage of the system. (Note that market-makers' quotes on the current Nasdaq system are not subject to the ten-second rule.)

What about retail limit orders? Nasdaq is a fragmented market without system-wide priority rules. While a dealer cannot trade ahead of a customer limit order he or she holds, the dealer is free nonetheless to trade ahead of customer limit orders held by other dealers or electronic communications networks. Plans for the new Nasdaq facility call for price and time priority inside the facility. However, that is only envisaged for non-directed orders. The market practices of payment for order flow, internalization and preferencing would guarantee that little, if any, order flow would be non-directed. Therefore, the system-wide priority rules will rarely be invoked.

Market participants could direct orders to the new Nasdaq facility or to another dealer. In this case, dealers' best-execution obligations would require that they obtain the best price, not the first best price.

A dealer could direct his order to another dealer offering the same price as the new Nasdaq facility, and his customer would be no worse off than if the order was executed against limit orders in the new facility. Hence, given the practice of payment for order flow, there would be no incentive for market orders to be directed to Nasdaq's limit-order facility.

In contrast, the New York Stock Exchange and the American Stock Exchange provide sufficient incentives for a large amount of market orders to be directed to them for execution against their limit-order books.

Although brokers can direct market orders to one of the regional exchanges or to Nasdaq (in payment-for-order-flow or internalization arrangements), many do not direct orders this way. Price improvement is the reason the NYSE and the AMEX continue to control the lion's share of trading in their listed stocks.

Studies have shown that more than 25 percent of the orders sent to the NYSE execute inside the current quote. Brokers like to report price improvement to their customers, so they have an incentive to direct market orders to the national exchanges. This provides the flow of market orders necessary to make the NYSE and the AMEX limit-order books successful. (Regional exchanges provide some opportunity for price improvement, though a far greater opportunity exists on national exchanges).

Without system-wide time-priority rules and the chance for price improvement, there is no incentive to send Nasdaq market orders to the limit-order facility. And without the flow of market orders, Nasdaq retail limit-order traders quoting at the same price as dealers will see their orders go unexecuted. That is, unless the market moves against them, in which case dealers will move their quotes and limit-order traders will see their orders executed at the worst possible times.

This provides a disincentive for retail traders to submit limit orders. Without the flow of market orders to interact with, the proposed Nasdaq limit-order facility will fail.

At press time, Nasdaq announced an agreement in principal with OptiMark Technologies to allow access to OptiMark from Nasdaq on a commission basis. The preliminary plans are to allow Nasdaq's limit-order facility to take part in OptiMark matches.

Given the wide spreads on many Nasdaq stocks, it is highly probable that matches will typically occur inside the spread. Therefore, limit-order traders quoting at the same prices as dealers will be no better off under the agreement.

However, the agreement with OptiMark clearly shows that Nasdaq is beginning to realize the magnitude of revenues it can gain from commissions versus spreads. Nasdaq should consider system-wide priority rules for all trades. While the primary-priority rule should be based on price, the secondary rule does not have to be based on time.

For example, the secondary-priority rules on the Toronto Stock Exchange are designed so that each member with orders on the book is guaranteed at least a partial fill. An order exceeding the size of the first quote at a given price is shared among all quote participants on an equal-allocation basis, up to some level (2,000 shares). Any remaining amount is allocated on a prorata basis.

Nasdaq should remember the lesson it learned in 1983 when it fought hard to prevent contemporaneous trade reporting. Recall that then-NASD President Gordon Macklin met with the SEC six months after the NASD was forced to accept the rule for a small group of stocks, and asked that all of its stocks be subject to the rule.

It turns out that change was good for business, because volumes and profits increased after the rule change. I believe the same would be true if Nasdaq created a level playing field and allowed limit orders a chance to be executed.

Daniel G. Weaver is an associate finance professor at Baruch College in New York and an expert on market microstructure.

In a move to strengthen their global sales trading, New York's Arnhold and S. Bleichroeder named Stephen Tatz head trader of the department. Tatz, a former head South African trader at the firm, reports to Geoffrey Collier, head of equities at Bleichroeder.

Four additional traders joined the global sales staff at Bleichroeder, reporting to Tatz. Roger Simpson moved from GFI Group in New York, where he was an inter-dealer broker. Kent Penney was previously an institutional salesman at New York's Alexander, Wescott & Co. Abigail Williams joined the firm from Josephtal & Co. in New York. And Chris Kramer was internally transferred from the convertible-bond trade desk.

Merrill Lynch & Co. named Jeffrey Peek head of its asset-management unit in the wake of the firm's $5.3 billion merger with London's Mercury Asset Management Group. Peek will be responsible for coordinating Merrill's $275 billion worldwide asset management activities. Previoiusly co-head of investment banking at the financial giant, Peek will be based in New York.

Richmond-based Scott & Strinfellow promoted David B. Marino to senior vice president. He serves as head position trader and manager of Nasdaq trading at the firm. Marino, a 14-year industry veteran, has been with Scott & Stringfellow since 1989.

Elizabeth Wood was named a senior sales trader for the international institutional equity-sales and trading division of New York-based Cantor Fitzgerald & Co. Wood is responsible for executing orders on non-U.S. equity products for the firm's leading institutional clients. She closed out her own independent firm, Robinson Investment Group in New York, to join Cantor.

The National Association of Securities Dealers appointed Gregor S. Bailar chief information officer for the organization and its subsidiaries, NASD Regulation and Nasdaq. In his newly-created position, Bailar will oversee all aspects of information technology, reporting to NASD Chief Executive Frank Zarb, and Richard Ketchum, NASD chief operating officer. Bailar, formerly a managing director and vice president of advanced development for global corporate banking at New York-based Citicorp, will be based in Washington.

The NASD also promoted John M. Hickey to chief technical officer, responsible for technology operations at the NASD. Hickey will continue in his current responsibilities at Nasdaq as an executive vice president of technology services, responsible for the day-to-day operations of the Nasdaq stock market. Hickey is based in Washington.

Dean Bruskof joined Sharpe Securities in New York as a director of exchange services on the floor of the New York Stock Exchange. Bruskof previously served in the same capacity at the NYSE for Chicago-based Rodman & Renshaw.

Campbell & Co. named Bruce Cleland chief executive officer, to replace Keith Campbell, the firm's founder and principal. Campbell will continue as chairman.

Citicorp Securities Services appointed Michael Richter president, responsible for marketing, product management, sales and trading. Richter, previously with the firm's distribution and investment-products group, reports to Ashok Bhatia, chief executive and chairman of Citicorp.

The New York-based brokerage firm also named Dennis M. Sarf a senior vice president of business development and correspondent-clearing sales. Sarf joined Citicorp from New York-based accounting and consulting giant Coopers & Lybrand. He reports to Richter.

Wesley M. Oler, head of equity trading at Brown Brothers Harriman & Co. in New York, was promoted to senior manager at the firm. A 19-year veteran at Brown, Oler supervises the domestic and foreign institutional trading desks, as well as the listed brokerage operation and electronic-trading group. He also serves on Brown's brokerage-management committee.

New York-based Cantor Fitzgerald appointed Joseph Simon chief financial officer. Simon will direct all of the firm's global finance and treasury operations, supervising a staff of more than 250 financial specialists. He previously worked as an international controller at Cantor.

Everett M. Ehrlich, a former undersecretary of commerce during the Clinton administration, joined the Securities Industry Association as an economic consultant. Currently, Ehrlich heads his own Washington-based consulting firm, ESC Company, which he formed last year after leaving his adminsitration post. Replacing outgoing SIA economic consultnat Jeffrey Schaefer, Ehrlich will report directly to SIA President Marc E. Lackritz.

One of two New York Stock Exchange vice chairman, James Jacobson, will step down from their post in June and not seek reappointment. Jacobson served as a vice chairman from 1992 to 1993, and was elected to his second term in 1996. The NYSE board appoints the two vice chairman to serve two-year terms. Jacobson, head of a specialist firm Benjamin Jacobson & Sons on the Big Board floor, served on the NYSE board from 1987 to 1993.

ABN AMRO Chicago Corporation has changed its name to ABN AMRO Incorporated.

Separately, the Windy City-based firm named Timothy J. Leach president and chief executive of its U.S.-registered investment advisor, ABN AMRO Asset Management. Leach was previously president and chief investment officer at Qualivest Capital Management in Portland.

New York-based Dresdner Kleinwort Benson North America, the U.S. investment-banking arm of Dresdner Kleinwort Benson, named Linda Byus and Jim Falvey senior equities research analyst. Byus joined Dresdner from Toronto-based Nesbitt Burns, and will specialize in the electric-utility industry. She will be based in Chicago. Falvey, previously with recently merged Smith Barney, will work in the firm's Boston office as an integrated-oil analyst.

Dresdner also hired Mike Cody as a senior sales trader, and Lee Middlekauf as a senior salesman. The two will be based in the New York domestic equities group. Cody was previously wit NatWest Securities in New York. Middlecauf was formerly a salesman at Boston-based Tucker Anthony.

Global giant Merril Lynch appointed E. Stanley O'Neal its chief financial officer. O'Neal previously served as co-head of Merrill's corporate and institutional client group, which includes investment banking and securities trading worldwide. Based in New York, he succeeds Joseph T. Willett, who will become chief operating officer for Africa, Europe and the Middle East.

The Securities and Exchange Commission has proposed a regulatory initiative to curb small-cap fraud and increase the responsibilities of broker dealers quoting small, thinly-traded over-the-counter stocks.

In a similar push, the National Association of Securities Dealers will publish, at the end of this month, a list of companies no longer meeting new standards to list on Nasdaq.

At press time, the SEC declined to comment on the outcome of the agency's Feb. 10 meeting.

At issue was a proposed SEC requirement that all broker dealers research and make available information on companies they quote on the pink sheets and the OTC Bulletin Board. At the moment, only the broker dealer initially quoting the over-the-counter stock is required to review the issuer's financial data. Updates are not required.

The SEC initiative is part of a larger agency drive to cut down on stock fraud. The pink sheets and the OTC Bulletin Board are generally perceived by regulators to harbor some questionably-listed companies.

Indeed, the OTC Bulletin Board, although owned by the NASD, is not held to the regulatory agency's listing standards.

Still, the SEC rule change may encourage rather than discourage small-cap fraud, according to Cromwell Coulson, chairman of the National Quotation Bureau, owner and operator of the manually-traded pink sheets.

"This rule springs from good intentions, but it will have the wrong results," Coulson said. "The new rules may put the information obligation on the broker dealer, who is not controlling the source of information. That information is the responsibility of the listing company."

He added that if broker dealers back away from quoting small-cap stocks, the listings could move to a wholly unregulated marketplace, like the Internet. "That type of black-market trading could hurt investors terribly," Coulson warned.

Separately, the National Quotation Bureau last month announced it would automate the trading of their more than 2,700 listings, pending regulatory approval. Coulson said the new system would provide a real-time bulletin board of market-maker quotations and an electronic-negotiation and order-routing platform for subscribers. He hopes to have the pink sheets fully automated by year's end.

"We will be getting a lot more listings with these new Nasdaq requirements," Coulson said.

On Feb. 23, the NASD is expected to make public a list of companies that do not meet the new Nasdaq listing requirements, with a view of pushing these listings to the pink sheets or the OTC Bulletin Board.

Approved by the SEC last August, the changes include a requirement that all Nasdaq and Nasdaq SmallCap common and preferred stock have a minimum bid price of $1. If a Nasdaq stock dips below $1 for 30 days, the stock has 90 days to return to the $1 mark, where it must close above $1 for ten consecutive days. Failing that, the stock will be delisted. The NASD said this measure is a safeguard against market activity associated with low-priced securities namely stock fraud.

Most Nasdaq stocks will also be required to have two market makers, 400 round-lot shareholders, 750,000 shares in the public float, a market value of at least $5 million and $4 million in net tangible assets.

Additionally, the new rules state that each Nasdaq SmallCap listing must have 300 round-lot shareholders, 500,00 shares in the public float, a market value of at least $1 million and either $2 million in net tangible assets, a $35 million market capitalization or at least $500,000 in net annual income.

Coulson expects more than 2,000 Nasdaq issues to delist to the pink sheets or OTC Bulletin Board this year under the new requirements.

In one of the most-high profile turnovers of its kind in recent memory, several well-known equity-trading executives, at firms that include Donaldson, Lufkin & Jenrette and Cantor Fitzgerald, are leaving the business.

At DLJ, a Dec. 12 internal memo to all employees of the New York-based firm announced the retirement of Robert Antolini, head of equity trading at DLJ. Antolini, topping a Wall Street career spanning four decades, has been with DLJ since 1985.

The memo said Antolini was leaving the firm by month's end. Antolini was succeeded by Robert Padala, previously head of over-the-counter trading at DLJ.

Peter DaPuzzo, president of equity sales and trading at New York-based Cantor, said he intends to retire by year's end, confirming widely-circulated rumors. "I still love the business," said DaPuzzo, who is 57 and a 40-year Wall Street veteran. "But I feel like it's time to move on."

"There have been many changes in this industry recently, and I think Cantor needs fresh blood to keep up with the new rules and maintain strong a business," he added.

DaPuzzo, whose duties became more administrative in recent years, said he plans to set a formal retirement date in the fall. But he doesn't intend to completely abandon the business.

After his retirement, he plans to enter modified service at Cantor, serving as a consultant several days a week. "I could never give it up cold turkey," he laughed.

At Hambrecht & Quist, William R. Hambrecht retired on Jan. 1 as chairman of the San Francisco-based investment bank he founded in 1968 with the late George Quist. Although not a trader himself, Hambrecht's general-brokerage and investment-banking firm is a leading broker dealer and co-manages more than $5 billion in equities. Hambrecht is 62.

Daniel H. Case III, the firm's president and chief executive, will succeed Hambrecht.

Making an unconventional career switch, Jim O'Donnell, president and chief executive of New York-based HSBC Markets and its equity-trading subsidiary, HSBC Securities, will resign in the summer to join the Roman Catholic priesthood. O'Donnell is 36.

An HSBC spokesman would only say that O'Donnell's decision was a "very personal one," and that Krishna Patel, deputy chief executive of HSBC's equities division, is slated to assume O'Donnell's position as head of worldwide business on an interim basis.

Two other top traders, Richard Bruno, the 51-year-old head of the Nasdaq trading desk at New York-based PaineWebber, and Bob Mattis, senior equity trader at Jersey City's Troster Singer, left their firms recently. Mattis has landed on the trading desk cross-town at Sherwood Securities. Bruno, who stepped down along with six other traders as part of a sweeping reorganization, remains a consultant to PaineWebber. He was succeeded by Patrick Davis and William Heenan.

DE. Shaw Securities has embarked on a new business goal, elbowing for more room among the bulge-bracket firms that trade most of Wall Street's agency block orders.

The New York-based broker dealer is directing the operation out of its 50-person U.S. equities unit on the 25th floor of the firm's midtown Manhattan offices.

D.E. Shaw, named after its founder and president, ex-computer professor David Shaw, has a reputation for secrecy. But not when answering questions about its latest hardball tactics wrestling with the giants in the world of agency trading.

"We're utilizing our quantitative expertise and the customer relationships developed in our basket-trading business," said Mony Rueven, a managing director at D.E. Shaw, who heads the U.S. equities unit. "We have a great service."

Most recently, the firm installed a team of sell-side pros to fill the newest niche in D.E. Shaw's overall equity-trading arsenal, with includes a third-market business.

The team includes former New York-based Furman Selz pro Bob Rice, who heads a soft-dollar services unit working with a three-person sales-trading group that was installed last month. The sales trading pros are Tom Shapero and Adrienne Toscano, both previously with Jersey City's Sherwood Securities. They all report to Jim Willsey, head of U.S. equity sales.

"We weren't waiting for the business to come to us," Reuven said. "We put this team in place late last year to sell and to facilitate our block-trading services"

Facing stiff competition from powerhouses such as Los Angeles-based Jefferies & Co. and Cantor Fitzgerald of New York, Rueven was confident, however, that there is room for more players.

Nick Gianakourous, a vice president in D.E. Shaw's equity unit, said the firm averaged up to nine million shares monthly since it started doing agency business in early 1997.

"Our agency business grew by more than 300 percent for the year ended Dec. 31, 1997," he said. About 90 accounts alone were added in the last quarter, bringing the total amount of accounts to "several hundred."

D.E. Shaw is hoping that its quantitative expertise, and its three-year-old principal-guaranteed or basket-trading business, will provide a strong base to build a block-agency business, giving salespeople handling its single stock orders an important supply of inventory.

In addition, the principal-guaranteed and third-market business provides D.E. Shaw with customer relationships, including about 100 broker dealers and institutions on the third-market side, critical for finding natural counterparties on a trade.

A principal trade enables a customer holding a block order to transfer the inherent market risks to a dealer who purchases the shares for his own inventory. The dealer, in turn, hopes to unwind or profit on the position. A principal trade is utilized by many investors to quickly unwind a position in an illiquid stock. Conversely, investors sometimes find it cheaper to cross the stock on an agency basis in highly-liquid stocks.

Hoping to create a unified emblem and project its global breadth, the National Association of Securities Dealers has launched a new company-wide logo.

The corporate identity a blue globe swathed by an electronic circuit board will replace logos independently representing the NASD and its subsidiaries, the Nasdaq Stock Market and NASD Regulation.

"We want to let the world know we are one family of businesses," said NASD Chairman Frank Zarb in a prepared statement. "An integrated look is an important element in conveying this message successfully."

Zarb added that the new logo is expected to result in more than $1 million in annual savings. An NASD spokesman explained that a one-stop printing order will save the NASD money, as only one logo will be needed for the NASD and its two subsidiaries.

The spokesman would not disclose the cost of the design nor reveal details on how the contract for the business was awarded.

Clive Chajet, the New York-based artist who designed the new logo, said the NASD wanted to project a strong visual representation for Nasdaq in the design. "Other exchanges have a trading floor or building front as a symbol," Chajet said. "The NASD wanted to create a visual soundbyte for instant recognition."

Chajet added the NASD also wanted to project an international look with high-tech imagery. "I hope that the new symbol captures and symbolizes the NASD's message," he said.

PaineWebber stopped making markets in more than 200 Nasdaq stocks in the past twelve months, a source familiar with the New York-based firm's equity-trading desk said. The headcount is lower, however, than the number rumored earlier this month.

The source estimated that PaineWebber cut its list of Nasdaq stocks from 735 to 525 within the last year. The reduction was done gradually, and the firm had not cut stocks in recent months.

News of the cuts were first reported in Wall Street Letter, an industry newsletter.

The reduction in Nasdaq stocks may be part of a reorganization of PaineWebber's Nasdaq trading operations in recent months. As reported elsewhere, seven Nasdaq traders left the firm in November, including head trader Richard Bruno. PaineWebber refused to comment whether the resignations were forced or voluntary. Patrick Davis and William Heenan have succeeded Bruno as co-heads of over-the-counter trading.

In trailing 12-month rankings, five firms alternatively took the top spot for 1997 in the aftermarket performance of initial public offerings.

But the king of the hill was Baltimore-based BT Alex. Brown, which planted its banner at the top the last four months of the year, posting a 42.41 percent average annual return as of Dec. 31.

The other sterling contenders, with the number of months each finished first inside brackets, were powerhouse Morgan Stanley Dean Witter (4), New York's CIBC Oppenheimer (2), Arlington Va.-based Friedman, Billings, Ramsey & Co. (1) and New York's Bear Stearns (1).

The rankings were conducted by The IPO Aftermarket, a sister publication of Traders Magazine.

Indomitable

Despite BT Alex. Brown's indomitable position as one of Wall Street's leading underwriters of new equity offerings, the firm's deals were still among the most affordable, according to data provided by Securities Data Co.

After pricing an average 2.2 percent above the mid-point of their filing range, the firm's deals closed 16.4 percent, 18.4 percent and 15.9 percent above offering at the close of first-day, one-week and four-week trading, respectively.

For institutions, and for individual investors often excluded from a deal's initial allocation, that means just one thing more bang for the long-term buck.

For purposes of comparison, the 42 IPOs headed by Morgan Stanley-led syndicates, which priced an average of 11.4 percent above the mid-point of their filing ranges, gained 26.2 percent in first-day trading. But they closed the year an average of just 33.3 percent above offering.

"Aftermarket performance is extremely important," noted Michael Ott, managing director of equity syndication at BT Alex. Brown. "You want to show investors and prospective companies that you not only can successfully underwrite an offering, but also build long-term shareholder value."

Investment in all of the firm's 23 lead-managed offerings would have yielded an average gain of 42.41 percent above offering, supplanting Morgan Stanley, the 1996 champion and four-time leader in The IPO Aftermarket's monthly rankings in 1997.

Diversification

The top five performing IPOs in the BT Alex. Brown stable in 1997 would suggest a heavy slant toward technology outfits. Still, diversification may be at the root of its underwriting success in today's sometimes unpredictable broader markets.

BT Alex. Brown's top five IPOs were Daou Systems (Nasdaq:DAOU), a third-party manager of computer networks, whose stock closed the year at $31.25, or 247.2 percent above its February offering at $9; Radiant Systems (Nasdaq:RADS), a provider of enterprise-wide technology solutions, closed at $28.50, or 200 percent above the $9.50 offering; AHL Services (Nasdaq: AHLS), a staffing and management outsource company, closed at $24.63, or 146.3 percent above the $10 offering; Galileo Technology (Nasdaq: GALTF), an Israeli-based developer of semiconductors, closed at $28.88, or 68.9 percent above the $17 offering; and Yurie Systems (Nasdaq: YURI), a developer of asynchronous transfer-mode products, closed at $20.19, or 68.23 percent above the $12 offering.

Overall, BT Alex. Brown underwrote IPOs from six industry sectors, with the number of IPOs included inside brackets: technology (6), healthcare (3), basic industries (4), consumer (6), real estate (1) and transportation (3). Ott noted that the Sept. 1, 1997 merger of New York-based Bankers Trust and Alex. Brown added three additional sectors to the combined entities' fold: basic industries, energy/power and financial sponsors.

Meanwhile, the aftermarket returns of all underwriters across almost every industry group collapsed amid a fourth-quarter flight to quality. From an average return of 41.1 percent for all IPOs at the end of the third quarter, the high-water mark for the year, trailing 12-month issuance (excluding unit offerings), fell 8.1 percent to 583 deals, while returns on those offerings plummeted to 21.9 percent by year's end.

Gains Pared

Leading the list of underwriters that saw their aftermarket gains pared were San Francisco-based Nationsbanc Montgomery Securities, whose 12-month returns fell to 23.7 percent as of Dec. 31, from 68.5 percent at the end of September; New York-based Prudential Securities, where returns fell to 17.1 percent from 57.1 percent; and BancAmerica Robertson Stephens in San Francisco, whose 18 lead-managed efforts saw aftermarket gains of 13.7 percent, down from 52.8 percent.

"If you look at pricings in December in the new-issue marketplace, it seems pretty rough," Ott said. "But we believe that a lot of that was seasonal and related to a high level of supply in the marketplace, making it a buyer's market."

Attrition and a strong level of issuance last November (86 companies raising $8.18 billion, the heaviest monthly volume of IPOs in the market's history) has largely alleviated the market's glut. The backlog of IPOs and follow-on offerings in registrations peaked at $27 billion as of the week ending Oct. 31. At a current level of about $14 billion, the supply and demand outlook is much more evenly balanced, Ott said.

Stephen Lacey is associate editor of The IPO Aftermarket, a sister publication of Traders Magazine.

Aftermaraket Manager Rankings

Avg. % Chg. Avg. % Chg.

# of Filing IPO to

Book Issues Midpoint 1st-Day

Manager Priced To IPO Close

BT Alex. Brown 23 2.20 16.39

Goldman, Sachs 39 8.88 18.32

Hambrecht & Quist 16 -7.13 18.35

Morgan Stanley Dean Witter 42 11.36 26.23

Bear Stearns 10 -6.90 8.02

Merrill Lynch 38 11.93 12.87

DLJ 24 -2.84 10.34

CS First Boston 19 17.68 8.75

NationsBanc Montgomery

Securities 32 -2.4 7.4

All IPOs* 583 -0.76 13.64

Friedman, Billings,

Ramsey & Co. 11 -6.07 8.30

Prudential 12 -7.89 5.89

BancAmerica Robertson

Stephens 18 7.79 14.11

Salomon Smith Barney 31 0.26 13.76

Lehman Brothers 22 -3.96 6.59

cont'd

Aftermaraket Manager Rankings

Avg. % Chg. Avg. % Chg. Avg. % Chg.

IPO to IPO to IPO to

Close After Close After Close on

1 Week 4 Weeks 12/31/97

18.37 15.97 42.41

16.91 21.64 36.17

12.81 14.41 35.17

23.29 24.93 33.25

8.38 15.72 31.1

9.17 8.52 30.10

7.75 8.26 28.98

7.15 5.37 25.07

20.83 19.26 23.7

13.39 14.05 21.96

8.99 7.55 19.63

8.82 12.77 17.10

14.09 15.27 13.73

14.40 12.53 9.08

4.13 6.28 3.71

Source: Securities Data Co.

*Aftermarket data do not include unit deals

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Traders are busy people, swamped in market data. So how do they find time to use this data effectively? Try market-data systems that are open, interactive and easily welded to other systems and information sources.

Speed and flexibility are the big kahuna.

In what may be a backlash against proprietary hardware, the market-data industry is undergoing a paradigm shift, moving like the rest of Wall Street from terminals and boxes to systems that are open, fast and more malleable.

Utilize Information

Technological change has swept market-data vendors off their feet, forcing them to de-emphasize hardware and to sell systems that utilize information more efficiently.

Perhaps nowhere is this more evident than in the latest avatar of Bridge Information Systems' Bridge WorkStation, which runs on a 32-bit Windows NT platform. Bridge and many of its competitors are now striving towards making their systems more interactive.

That should please Richard Holway, head of trading at Investment Advisors, a $17 billion money manger based in Minneapolis. "I want interactive technology, to allow me to track my portfolio easily," Holway said.

Holway wants an electronic blotter on his computer, where the market-data feed can be programmed to track his investments to the last fraction. "I want to look at my portfolio from every angle," he added.

Like many of his peers on Wall Street, Holway is looking to his system for information he can use. For example, he follows news alerts on the equities he holds in his portfolio, the put-and-call action, price movement, a market-maker activity list, earnings estimates and any useful information that can have an impact on his portfolio.

That's a far cry from the early days of the ticker, when rumors formed the cornerstone of investing and the tape was an unending roll of paper.

Dawn of 20th Century

At the dawn of the 20th century, in his famous and hugely popular book, "Where the Money Grows," journalist and author Garet Garrett noted that there are those on Wall Street who spent hours reading the ticker-tape, finding trading clues as the machine spewed reams of paper.

As this century draws to a close, much of the paperwork has been reduced by technological gizmos, as professional investors and traders, Nasdaq market makers included, sit hunched in front of their computer screens, looking for information as the numbers fly across the cathode-ray tube.

This is the brave new world, where market data flies across fiber-optic cables, faster than the speed of light, helping the money men and women make or lose small fortunes. With more than half-a-dozen options available, it is no surprise that a trader's desktop computer is more cluttered than the New Jersey turnpike at the height of evening rush hour.

Holway says that in the future, the industry will see a merging of trading and quote systems. His own desk uses Reuters Research & Analytics, which is bundled with another Reuters-owned product, Instinet, a system he frequently uses in trading.

Spending

The importance of technology is underscored by the increasing amount of money securities firms are spending to upgrade their infrastructure. The financial-services industry has historically been very aggressive about adapting information technology, from the use of electromechanical devices in the 1930s, to Internet technology in the 1990s.

According to the Tower Group, a Boston-based research firm, large securities firms are the most substantial investors in information technology. A recent Tower study notes that large firms are using information technology to find trading opportunities that could not otherwise be found.

The study says that firms that invest heavily in applications technology perceive themselves to have better technology than their competitors. The study adds that firms spend more than 15 percent of their total technology budgets on market-data services and trading technologies.

That is good news, of course, for the more than a dozen market-data vendors, including top dogs like Bloomberg, Dow Jones Markets, Reuters' Quotron, Bridge, S&P Comstock and BMI, duking it out for the more than $5 billion-a-year market.

Traders Choose

How do traders choose their market-data providers? And what are the most popular systems?

Tom Norby, head of Nasdaq trading at Portland-based Black & Co., notes that when he is selecting a market-data system, his top priority is the unique information the service provides. That's a view shared by T. Erik Conley, a head equity trader at Chicago-based buy-side firm The Northern Trust Company.

"The ability to get the very latest news, charts and other market data is one of the clinchers," Conley said.

While most pros discount cost, none are willing to compromise accuracy and reliability. In addition, most look for ease of use.

Bridge is the favored vendor on Conley's desk, because, he said, "we need a flexible system accessible from various offices around the country." Bridge has more than 70,000 users worldwide.

Still, Conley has a Bloomberg terminal humming on his desk. Why? "Because Bloomberg never goes down," Conley said. He points out that he decided to use Bloomberg as an option after his Bridge system went down on several occasions.

Conley has company. Most traders tend to use several systems. "I would not feel as comfortable with Bloomberg if it was the only choice," another trader said. Nevertheless, the terminal's ease of use has helped Bloomberg to sell 75,000 of its squat, plain boxes around the world.

Download Data

A major feature Conley wants is the ability to download data to run spreadsheets. That's available in Bridge, which recently purchased Knight Ridder Financial News (thus adding more muscle to its fledgling service).

Bridge, for example, gives professionals an option to retrieve real-time equity, fixed-income, foreign-exchange and commodity prices on the same workstation screen using multiple windows.

However, if the user just wants the data feed, Bridge has an option to integrate feeds from rivals like Dow Jones and Reuters, via new technology called Data Gateway.

Bridge is taking another step. By using cross-platform Java language, the company wants to open its system further, and integrate it even more tightly with Internet and Intranet technologies.

The appetite for open systems, which use technologies like the Internet and Windows NT platforms, has prompted even the likes of Bloomberg to use open standards.

The company recently introduced The Open Bloomberg, a system which allows customers to access its services through their own PC or workstation by interfacing with Bloomberg hardware and software, using a common keyboard that is color coded for Bloomberg applications.

Aggressive

Bloomberg's aggressive moves to take over the desktop world has forced established players like Dow Jones Telerate, now renamed Dow Jones Markets, to be more defensive. Even Reuters' Quotron real-time financial-information system has started distributing information via the Internet.

Some experts, however, feel that this recent trend towards openness is due to fast-declining prices of financial information. That makes it imperative for market-data vendors to give their customers more functionality and to keep them firmly in their fold.

The economic boom ushered in by the industrial revolution of the late 19th century sped the modernization of North American cities, and the laying of railroads connecting major centers of commerce in the U.S. and Canada.

At the dawn of the 21st century, technological advances and a surge in stock-market investing among U.S. residents have opened the Canadian markets as never before, propelled not by rail links, but an electronic pipeline, transporting an increasing volume of business.

A network of order-routing and execution systems is carrying Wall Street stock orders for execution on Canada's exchanges.

For Canadian dealers, tapping accessible U.S. equity order flow has become a popular trading strategy, helping broker dealers to reap record profits in recent years.

"Cross-border trading [with the U.S.] is increasingly important," said Paul Bowes, vice president of equity markets at the Toronto Stock Exchange (TSE), Canada's largest exchange. "We [Canadian stock markets] are just beginning to tap our potential."

Surge in Trading

According to the Securities Industry Association, U.S. investors made U.S. $20.42 billion in gross transactions in Canadian equities in the third quarter of 1997, up 9.5 percent from the previous quarter.

Only U.S. equity activity in the U.K. and Japan exceeded the third-quarter gross transactions or purchases plus sales of Canadian stocks.

The New York-based trade group noted U.S.-investor acquisitions of foreign securities in the third quarter of 1997 totaled nearly U.S. $38.6 billion, representing almost half of the U.S. $77.5 billion acquired through the first three quarters of the year. These acquisitions helped push U.S. holdings of foreign stocks and bonds to a record U.S. $1.5 trillion.

"The U.S. interest in Canadian stocks is probably consistent with prevailing implications of global investing by Americans," said Andrew Karolyi, a professor at the Richard Ivey School of Business at the University of Western Ontario. He added that the widespread diversification of global trading has risen with the demand among investors to diversify their portfolios.

With global investing on the rise, Canadian firms are benefiting greatly. The Investment Dealers Association of Canada estimates brokerage revenues accounted for one-half of the financial-industry's revenue in 1997. The Toronto-based trade group reported that brokerage revenues partly through the surge in U.S. business have expanded at an average rate of 18 percent annually since 1993.

"We are dealing with a large number of American firms following the global trend of international investing," said Paul Chalmers, director of international trading at Vancouver-based Canaccord Capital.

Indeed, more than half of Canaccord's 35 equity traders in Vancouver work with U.S. retail and institutional order flow, according to Chalmers. "The population of the U.S., about 270 million people, is almost ten times that of Canada," he added. "Americans are twice as likely to buy stocks as Canadians. Americans are spreading their investments across all markets, and we are benefiting." Chalmers estimates his firm works with 500 broker dealers in the U.S. each year.

In fact, according to Lawrence Booth, a professor of finance at the University of Toronto's Rotman School of Business, a large number of Canadian stocks have as much U.S. ownership as Canadian.

"Americans buying Canadian stocks has become a normal course of business," Booth said. He added that with natural-resource stocks floundering recently, U.S. investors have been surging into the Canadian banking and financial-services industries. "I wouldn't be surprised to hear news of a major Canadian bank merger with all of the activity," Booth said.

"Americans are definitely more interested than ever before in buying in Canada," said Mary Ann Camilleri-Power, international equity trader at Toronto-based Nesbitt Burns. "Our dollar has dropped, so the price of Canadian stock is more attractive."

The Canadian dollar has plummeted so severely, on Jan. 21 it reached its lowest level against the U.S. dollar since 1858 the year it replaced pounds, shillings and pence as a unit of exchange. On Jan. 21, the U.S. dollar was at Canadian $1.45. Financial experts blame the drop on low interest rates in Canada and the recent slide in the price of commodities that are an important part of the Canadian economy.

Consequently, with the U.S. dollar stronger in Canada, Canadian stocks are a more attractive investment for American investors.

At Nesbitt, Camilleri-Power and five other traders in Toronto deal exclusively with U.S. firms. The institutional house also has three international traders in New York.

At Yorkton Securities in Vancouver, international trader Ken Coe estimates 50 percent of order flow across Canadian exchanges comes from the U.S. "I think the advent of new technology will continue to feed this Canadian boom among firms," he said.

Traditionally, business from U.S. dealers was conducted over the telephone. Even today, most dealer-to-dealer interaction is done over the telephone. But several electronic systems are speeding the flow of orders and creating a seamless trading pipeline.

"Electronic systems will create faster, quicker, more efficient vehicles to access liquidity," Karolyi said. "It is the surge in American business that has helped speed their arrival."

Camillieri-Power concurred. "We are trying to improve our systems for a seamless electronic network," she said. "That is clearly the way business is going. We have to make these improvements to keep our clients American and Canadian happy."

Cross-Border Trading

A Canadian dealer, like Chalmers at Canaccord, quotes a market in a stock. U.S. dealers see the quote on their own market-data systems. They call Chalmers to send him their order, and his desk calculates the exchange rate, charges a commission and sends the order to the exchange system for execution. Chalmers then writes and posts the trade in net U.S. funds for the U.S. dealer.

Coe at Yorkton explained that when a U.S. dealer does not have access to his or another Canadian-trader's quote, the initial telephone call from the U.S. is to check his quote. The American dealer will then check Coe's quote with one or two other dealers before routing his order to Coe's desk.

But more orders are being routed electronically. For example, on a VERSUS system, operated by the Toronto-based developer, distributor and licensor of electronic trading systems, VERSUS Technologies, trades are routed directly from a U.S. dealer to the designated exchange or crossed with a participating broker. Orders routed electronically are sent to a Canadian-dealer's desk from an American desk.

Trades executed in Canada are normally cleared in Canada, and Canadian dealers are subject to their national regulatory agencies. On the other end, the U.S. firms are subject to regulation by the Securities and Exchange Commission and the National Association of Securities Dealers.

Canadian Exchanges

All major Canadian exchanges have switched from open-outcry floor environments to electronic trading. Floor brokers have moved to their firm's offices, with trading done from far-reaching and remote locations over computer networks. Each exchange has created its own terminal-based system for trades to be crossed in the electronic pit or filled by the specialist.

Among Canadian exchanges, the TSE accounts for more than 84 percent of the country's trading activity. The 11th most active stock exchange in the world, the TSE set its fifth consecutive yearly value record in 1997 at Canadian $423 billion. Currently, the TSE quoted market value stands at Canadian $1.27 trillion.

Owned by its 101-member brokerage firms, the TSE is currently implementing TOREX, a new trading complex. The TOREX system will offer traders a workstation or trading application to process, monitor, record and execute trades of the TSE's 1,720 listed stocks.

"TOREX will be quite a leap for some of our traders," Bowes said, "but I know it will help our investors in the long run."

The Canadian Dealing Network, a subsidiary of the TSE, is Canada's only organized over-the-counter market. The competitive dealer market similar to Nasdaq traded 2.8 billion shares in 1996, up 70 percent from 1995.

The Montreal Stock Exchange (MSE) is Canada's second major exchange. In 1997, the total MSE trading value reached Canadian $61.91 billion, surpassing the previous record set in 1996 by 23 percent. The MSE saw 1.93 billion transactions last year for its 852 issues. The Boston Link, an agreement with the Boston Stock Exchange, allows the electronic exchange to route retail orders to Boston for automatic execution. The agreement allowed Montreal and Boston dealers to jointly trade 34.3 million shares in 1997.

On the Pacific coast, the Vancouver Stock Exchange (VSE) is a growing market for small-cap and volatile young companies looking for exposure, according to Camilleri-Power. "It's a shooter's market, attracting investors looking for a big gain," she said.

In 1997, a total of Canadian $1.47 billion was raised through the VSE. The electronic venture-capital market specializes in resource-based companies, although technology, commercial and industrial companies have grown in listings in recent years as the exchange has grown. In fact, the VSE welcomed 54 new listings in 1997, the most in seven years.

American Outposts

A number of Canadian firms have opened outposts in the U.S., and are becoming members of American exchanges.

"I think that with globalization and increased regulation, more and more firms are becoming members of foreign exchanges," said Richard R. Angle, head of international trading at Vancouver-based Georgia Pacific Securities. "Sometimes you can get a crappy deal unless you are a member of the foreign exchange you are dealing with."

Camilleri-Power explained her firm has opened an office in New York with three international equity traders, and is now a Nasdaq and New York Stock Exchange member.

Toronto Dominion Bank, the large dealer subsidiary of The Toronto-Dominion Bank, jumped into international trading two years ago with the surge in northbound order flow. They have nearly 25 equity traders in New York, with five focusing on orders originating in Canada for execution on American exchanges. Ray Tucker, vice president and director of the firm, estimates ten percent of TD's international trading is orders sent from Canada to American exchanges.

Trading South

For international traders in Canada dealing with the U.S., the majority of orders are sent from the U.S. for execution on Canadian exchanges. To be sure, some Canadian firms do send orders south for execution in America, and many combine north and southbound business.

Large firms with offices in the U.S. normally send orders from their Canadian desks to their American desks for cheaper executions. Other firms make deals with U.S. firms that send order flow north, Coe said. He added that 30 percent of Yorkton's international trading activity is orders sent to the U.S.

"The trading is no different than that done by U.S. firms sending us orders," Coe added. "But there are just more willing investors and more capital in the U.S."

"Americans," Chalmers added, "are just more likely to buy stock,".

These Canadian dealers remain confident Americans will continue to explore the Canadian markets.

"We think that Canada [Canadian stock] is a wonderful opportunity for U.S. firms," Bowes said. "With our technological innovations, we hope they find it easier to take a second look."