On Wall Street, appearances can be misleading. Take the New York Stock Exchange. That 89-year-old, faux-Roman temple at Broad and Wall seems to be, well, a place to trade stocks. But "it's not just a place," the NYSE is pointing out in its new TV commercials, it's "a way of doing business." NASDAQ, meanwhile, is fighting a persistent rumor that it is the computerized trading system for over-the-counter stocks. OTC stocks? Heaven forbid: NASDAQ is "The Stock Market for the Next 100 Years."
Silly? No--it only seems that way. In fact, such semantic posturing is serious business to the Big Board and archrival NASDAQ, the stock-trading system operated by the National Association of Securities Dealers (NASD) in Washington. NASDAQ and the Big Board are in a war--and not only a competition--for listings that has seen the NYSE make significant strides in recent years. The two rivals are also intensifying their struggle against a less tangible enemy: what they contend to be unfair public perceptions.
MISUNDERSTOOD. It's a battle that's being fought in the trenches of the investment world--newspaper stock tables--as well as over the airwaves. The NYSE recently began broadcast advertisements for the first time in its history, aimed at showing, among other things, that the NYSE is as high-tech as NASDAQ. Meanwhile, NASDAQ is striving to spread the word that, among other things, it is as respectable as the NYSE--and it has gone so far as to jawbone brokerages to abandon the term "over-the-counter," which NASDAQ abhors.
Both NASDAQ and the NYSE agree on one thing: They are terribly misunderstood. "I think there's a real lack of knowledge out there about auction markets and dealer markets and the differences between the two," complains Big Board Chairman William H. Donaldson. "Very few people know what the NYSE is, other than a building in New York." And if NASDAQ has its way, that's about all anyone would ever want to know. Asserts NASDAQ President Joseph R. Hardiman: "We are clearly positioning the NASDAQ National Market System to be a viable competitive alternative to the New York Stock Exchange."
The NYSE's radio and TV ads are, thematically at least, similar to the NASDAQ commercials that introduced the slogan "The Stock Market for the Next 100 Years." But the NYSE ads note that it has a human interlocutor missing at NASDAQ--the specialist on the exchange floor. "Our computer system is one of the most advanced in the world," intones the narrator, actor Leonard Nimoy ". . . yet even all our technology still can't do what people do better than any computer--negotiate the best price for you."
The "you" in this ad is the small investor--who is responsible for only a small fraction of Wall Street trading volume nowadays. But Donaldson and NYSE President Richard A. Grasso maintain that the ads are on target. Even though NYSE trading has long been dominated by institutions, they note that individuals still provide the NYSE with much-needed liquidity. "My very strong view is that the more participants you have, the better markets you have," notes Donaldson.
Another rationale for the NYSE ad campaign would be that it counteracts NASDAQ's two-year-old broadcast effort. But Grasso and Donaldson say that any similarity between the two is purely coincidental. In any event, the NYSE's public relations challenge pales beside the one facing NASDAQ, which is still distancing itself from the notion that it harbors sleazy penny stocks. NASDAQ officials note that the worst penny stocks haven't traded on NASDAQ at all but have appeared in the "pink sheets" or their successor, the OTC Bulletin Board.
On June 15, NASDAQ took one significant, but little heralded, move to exorcise the penny-stock demons that haunt its public image. The NASD expanded considerably the requirement that NASDAQ market makers report all trades within 90 seconds, bringing it into line with the NYSE.
That has long been a requirement for the 2,700 securities in NASDAQ's National Market System, which include a number of large- and medium-capitalization stocks. Such real-time trade reporting has now been extended to the 1,400 NASDAQ companies that are too small to qualify for the NMS. Until June 15, market makers were required to report only the final bid and ask price quotations for the non-NMS stocks. This move means that only OTC Bulletin Board stocks are not subject to real-time trade reporting.
CHANGING NAMES. The real-time reporting rule has resulted in a change in newspaper stock tables that is right in line with NASDAQ's agenda. Since closing-price and volume information is now available, newspapers are opting to report that in lieu of bid and ask quotations. Those quotes didn't always reflect real prices, and they also made NASDAQ listings look different from the exchange and NMS listings. But this is not necessarily a change for the better. The spreads of the most thinly traded stocks tend to be very wide--and spread information is often more useful than last-sale prices, notes John Markese, research director of the American Association of Individual Investors.
Of course, bid and ask quotes are still available to anyone who wants to call his broker--and the broker can always call the OTC trading desk to be sure. Oops! "The sign over my desk says 'NASDAQ trading,' " notes Joseph Loftus, a Lehman Brothers Inc. senior vice-president who heads what was known, until recently, as the NMS/OTC trading desk. NASDAQ officials are pleased--and would very much like other industry execs to follow suit. "I think it's going to be a very long sale," sniffs Binkley Shorts, manager of the Over-the-Counter Securities Fund. "It's still a bid-ask, dealer market. So as far as I'm concerned, the term OTC is accurate." Perhaps. But "Stock Market for the Next 100 Years" sounds a whole lot prettier.