NASD Proposes Rule Change Relating to Market Makers

Washington, DC, February 7, 2000 - The National Association of Securities Dealers, Inc., through its wholly owned subsidiary, the Nasdaq Stock Market, Inc., has filed a rule proposal with the Securities and Exchange Commission to permit electronic communications networks (ECNs) to register as market makers in listed securities through Nasdaq-provided quotation and trading facilities. Comments on this proposal are due to the SEC no later than February 22, 2000.

Nasdaq currently operates the Computer Assisted Execution System (CAES), a trading system which allows NASD member firms to direct orders in Consolidated Quotation System (CQS) securities to market makers for execution. Through CAES, NASD order-entry firms and market makers can participate in off-exchange trading of exchange-listed securities by entering market and limit orders in exchange-listed securities to be executed against other market makers quoting at the best bid or offer in those securities. CAES also serves as the NASD's interface with the Intermarket Trading System (ITS). The ITS is a communication network designed to facilitate intermarket trading in exchange-listed securities by linking the NASD and the national securities exchanges.

Nasdaq is proposing to modify the CAES system to allow ECNs to register as market makers in listed securities through CAES. Nasdaq believes that ECN participation in CAES would have a positive impact by significantly increasing order flow, thereby contributing to a more active and liquid market. In addition, Nasdaq believes that ECNs should be given the opportunity to participate in off-exchange trading of exchange-listed securities on an equal basis with other NASD members who choose to register as ITS/CAES market makers. An ECN that chooses to exercise this option of registration would be required to post two-sided quotations, be firm for the price and size of those quotations, and participate in the CAES execution service on the same basis as other non-ECN ITS/CAES market makers.