Transatlantic OTC traders joining hands
In one of the biggest steps yet toward the globalization of financial markets, the NASDAQ stock trading system in the United States is linking up with a similar system operated by the London Stock Exchange. The aim: to give American and British investors access to split-second price changes on stocks traded over the counter in both countries.
Over-the-counter securities (also known as unlisted securities) have surged in popularity in recent years, both in the United States and Britain. Volume on the NASDAQ (National Association of Securities Dealers Automated Quotations) has grown more than 450 percent since 1980.
Via its own electronic system, the London Stock Exchange already links 4,000 terminals at LSE member firms and big British financial institutions. Beginning next Tuesday, 200 large NASDAQ firms and 70 non-British American Depositary Receipts (units representing foreign stocks) will be listed as well.
In exchange, 288 British stocks will eventually be carried on NASDAQ terminals in the US.
Very soon, says Gordon S. Macklin, president of the National Association of Securities Dealers, a money manager in, say, Scotland will get the same list of ``bid'' and ``offer'' quotes on a stock like Apple Computer that his American counterpart now gets. He will be able to buy or sell immediately -- if he does so at certain times of the day.
Because of time differences, opening quotes from the NASDAQ will not appear in London until 3:30 p.m. Updated quotations will continue until the London system closes at 5:30 p.m.
London quotes will reach desks in the US at 7:30 a.m. (Eastern time) and continue to be updated until 12:30 p.m, after which London's closing prices will be available without change until the close of the NASDAQ.
Most transactions, officials say, will occur in the two- to three-hour overlap of trading hours in the two markets.
Even without this electronic linkup, interest in overseas equities has been growing rapidly, Mr. Macklin says.
Foreign purchases and sales of US stocks have climbed from $75 billion in 1980 to $145 billion last year. US transactions in foreign stocks rose from $16 billion to $44 billion over that period.
Macklin attributes much of the increased US activity in foreign stocks to the fact that despite a strong stock market in the US, the markets in Britain, France, Switzerland, Germany, and Sweden have all performed better.
Macklin says he thinks British investors will be impressed by the depth of the US market once they are hooked into the NASDAQ: ``There's not just a single specialist [as on the New York Stock Exchange], but four or five dealers tied with the best offer.'' This, he says, will give ``institutional investors the confidence to buy and sell in significant size.''
The names of the dealers will help bolster investor confidence, too, he says. Goldman, Sachs & Co., Salomon Brothers, Merrill Lynch, and many others are very active in NASDAQ trading.
But Macklin notes that not all the details are worked out. The actual clearing transactions (the change of title and the shifting of official paper work) have not been completely settled between the National Securities Clearing Corporation in New York and the London Stock Exchange Clearing Corporation.
It may be late this year before this is resolved. Meanwhile, he expects buyers in Britain simply to contact a local branch of a particular NASDAQ ``marketmaker'' to conduct a transaction after finding the best price among listings: the London office of Merrill Lynch, for instance.
Another problem -- one that could hamper some British firms from being listed on the NASDAQ -- is that only stocks registered with the US Securities and Exchange Commission can be carried on NASDAQ.
Many British equities are SEC registered, but, notes Macklin, ``we need to work out an improved level of disclosure of financial information. There's a lot of work to be done.''
Still, Macklin expects a similar link with Tokyo eventually. He characterizes this a global ``evolution from the marble halls [of stock exchanges] to computerized systems.''