Charles Schwab, a leading voice in the US consumer investment market, is pressing Nasdaq to intervene when trading in individual issues -- especially Internet stocks -- becomes especially volatile.
The letter, dated 15 January, but only published on Schwab's online investment site, urges the National Association of Securities Dealers to impose trading halts when stocks experience sudden gains or losses. The measure is needed, he insisted, to protect small investors who place buy orders, only to see prices multiply in a matter of minutes.
The gyrations in Internet-related stock issues have become increasingly unpredictable in the midst of the fall-winter rally that erased US markets' mid-1998 losses. Nearly any well-known Net stock could serve as an example, but a couple are emblematic: The incredible career of online flea market eBay since its September IPO (it opened at US$18 and has been as high as $321) and Broadcast.com's leap into the stratosphere -- from below $100 to $289 -- earlier this month.
"It's not unusual to see 10, 20, 30, even as much as a 50-point movement in a matter of minutes," Schwab wrote. "... You could place a trade at a projected price of $10 and end up paying $40. It can, and does, happen."
Nasdaq has noticed. On 8 January, it asked Broadcast.com to explain the activity in its stocks, a request the company declined to answer. More significantly, the exchange of mostly high-tech issues has appointed a subcommittee to its standing quality of markets committee to make recommendations on how to respond to the current volatility.
NASD spokesman Mike Shokouhi said the range of options the subcommittee is studying includes the kind of trading halt Schwab is suggesting. Any recommendations the panel makes need approval by the US Securities and Exchange Commission.
