Dow Jones Newswires, November 17, 2004

WASHINGTON (Dow Jones)--The Nasdaq Stock Market is a faster, cheaper and more efficient way to trade most stocks, including large-cap shares that typically list on the New York Stock Exchange, a new report by a free-market think tank concludes.

Nasdaq is an electronic trading system composed of hundreds of market makers, while trading on the NYSE occurs on the floor of the exchange's home in downtown Manhattan, relying on specialists who are supposed to ensure orderly trading.

Only a handful of stocks, including Charles Schwab & Co. (SCH), Hewlett-Packard (HPQ) and Walgreen's (WAG) are listed on both the NYSE and Nasdaq, making head-to-head comparisons difficult. But, the new study of trading on both markets earlier this spring determined Nasdaq's approach to be superior to the NYSE's for investors and publicly traded companies.

"Nasdaq's computer-based trading system now executes most classes of trades faster and at less expense than the NYSE's system of specialists on a trading floor," according to the report issued by the Pacific Research Institute, a San Francisco think tank. PRI is funded by individuals and corporations, and its corporate backers include NYSE-listed firms along with others that are Nasdaq-listed, including Microsoft, Inc. (MSFT).

Ironically, the study found the NYSE retains a competitive edge only in trading shares of some small-cap companies. For large cap firms in the Standard & Poor's 500 Index, the report determined that trading on Nasdaq was typically 40% cheaper than on the NYSE. Trading on the NYSE was significantly cheaper than on Nasdaq only for pricey small cap stocks trading at upwards of $50 a share.

The study compared trading in May, 2004 for market orders of large-cap, mid-cap and small-cap stocks, based on a weighted share price and the average effective spread, a measure of the difference between actual price of the trade and the best posted prices.

Speed is another area where Nasdaq has the advantage, generally executing trades in half the time that the NYSE does, according to the report. Its analysis of trading in May 2004 found Nasdaq took an average 8.5 seconds to execute trades in S&P 500 stocks, compared to 15 seconds on the NYSE. An earlier study by the Securities and Exchange Commission found Nasdaq was faster in trading small orders, but concluded the NYSE generally did a better job on large orders for more than 2,000 shares.

"The Nasdaq's computer-based, open-access approach provides genuine competition in market-making, enabling it to execute most trades some 50% faster and with spreads that are 40% to 50% smaller, but provides less of a safety net for companies with small investor demand," the report concludes. It was prepared by Robert Shapiro, an economist who was Commerce Depar-tment Undersecretary for Economic Affairs in the Clinton administration.

Shapiro said the NYSE's plan to become a "hybrid market" offering customers the option of automated trading should make it more efficient in the future. But, he predicts Nasdaq will retain the upper hand unless the NYSE can strictly limit intervention by specialists to trades where they are needed - namely transactions where the market isn't providing sufficient liquidity.

NYSE spokesman Ray Pellecchia said he had not seen the new study, but questioned the findings that the NYSE is a less efficient market than Nasdaq.

"Every independent research that I'm aware of shows the opposite to be true," Pellecchia said.

When Nasdaq-listed companies move to the NYSE, Pellecchia said, price volatility and trading costs for the stock are cut in half.

"The results are night and day," he commented.