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SEC Approves International Over-the-Counter Trading Session

October 11, 1991

WASHINGTON (AP) _ Regulators approved an experiment in early-morning electronic stock trading that could widen U.S. investors’ opportunities to participate in world trading when American exchanges are closed.

The Securities and Exchange Commission approved on Thursday a two-year pilot project proposed by the National Association of Securities Dealers, which operates the Nasdaq computer-based stock market.

The new service, to begin in early January, will allow trading of U.S. over-the-counter stocks, as well as securities listed on the New York and American stock exchanges, in the pre-dawn hours when only foreign markets are open.

″This system opens up the prospect of improving, in a rather considerable way, the availability of information about trading in U.S. stocks to U.S. investors,″ said SEC Chairman Richard Breeden.

He noted that while U.S. stocks are traded somewhere - Tokyo, Hong Kong or London - almost 20 hours a day, U.S. exchanges and Nasdaq are only open for business for about seven hours.

″What you have to remember is, this trading is happening anyway. There is 24-hour-a-day trading. It happens every day the markets are open. The only question is whether any part of the non-U.S. trading is going to happen through U.S. systems or whether it’s all going to occur through foreign systems,″ Breeden told reporters after the vote.

The Nasdaq early-morning session, known as Nasdaq International, will also make it easier for foreign-based investors to trade in U.S. stocks. But its main customers are expected to be big U.S. institutional investors, such as pension funds and insurance companies, looking for an alternative to overseas exchanges like London when the U.S. markets are closed.

Breeden, however, insisted that Nasdaq International ″is a system the little guy can use as well as the big investors.″

The NASD plan calls for a two-year pilot project in which Nasdaq hours, normally 9:30 a.m. to 4 p.m. Eastern time, will be expanded to include a 3:30 a.m. to 9 a.m. trading session.

That session would begin when the London Stock Exchange opens, and end 30 minutes before U.S. markets open on the East Coast.

NASD rules changes are subject to approval by the SEC, which approved the proposal 3-1.

The lone ‘nay’ voter, SEC Commissioner Edward Fleischman, expressed concerns about the new system’s trading disclosure standards, which will be lower than those of Nasdaq’s domestic system.

Regulators’ concerns about reduced trading disclosure has delayed consideration of the NASD plan, first proposed in June 1990.

″The longer someone at this table hangs on″ for better public access to stock prices and volume, ″the more chance that we will inch toward it,″ said Fleischman, chiding Breeden for seeking greater disclosure in U.S. markets while allowing less disclosure in a trans-Atlantic system.

Breeden said Nasdaq International was merely an experiment and not necessarily guaranteed permanent approval.

He also noted that even less information about trading in U.S. stocks is reported now on the London Stock Exchange.

The Nasdaq International system will provide the high and low prices and the aggregate volume during the international trading period for any stock with two or more market makers, dealers who specialize in that particular stock. That information will be supplied at 9 a.m., the end of each trading session.

The closing price in London, however, would not alter the opening price in the United States when the Nasdaq domestic market reopens at 9:30 a.m.

The New York Stock Exchange, which canceled its own plans for an early- morning trading session earlier this year, urged the SEC to reject the plan. It said that ″allowing the NASD to establish trade reporting standards based on (British) practices could seriously undermine the U.S. markets in these securities.″

The American Stock Exchange has not taken a formal position. But a spokeswoman said Wednesday, ″We understand and are sympathetic to the concerns that the NYSE has raised.″

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