(October 27) – “When Lucent Technologies Inc. warned of disappointing results two weeks ago, it was clear the stock would open the next day sharply below that afternoon’s close of $31.38 on the New York Stock Exchange,” writes Grep Ip in today’s Wall Street Journal.

“But the next morning, as the specialist in charge of trading the stock on the exchange floor was indicating Lucent would open between $23 and $25, a price quotation popped up on investors’ screens: A Nasdaq firm was bidding $10 and offering $48.50. It was a gaping spread for any stock, never mind one of the Big Board’s most heavily traded.”

“The gap perturbed Richard Grasso, the NYSE’s chairman and chief executive. ‘Many investors are angry and confused when they see [at] the opening of Lucent, a $10 bid, offered at $48,’ Mr. Grasso told a securities industry conference at New York’s Pace University Wednesday. ‘That kind of market doesn’t belong in the public arena. If there are institutions or intermediaries that want to publish quotes of that nature, they should do it outside the domain of the traditional markets.’ “

“Mr. Grasso says he complained to the Securities and Exchange Commission about the incident.”

“His complaint is part of a broader concern with trading outside regular hours when stocks often move sharply on very little volume, the subject of an earlier complaint by Mr. Grasso to the SEC. Although there is no record that anyone actually bought Lucent at $48 or sold it at $10 that morning, it could in theory happen if an investor or broker wasn’t careful.”

“But Nasdaq dealers, who also can trade NYSE-listed stocks, said that is highly unlikely. ‘I can’t imagine that anybody would trade at those quotes,’ said Bernard Madoff, president of Bernard L. Madoff Investment Securities, a Nasdaq dealer specializing in trading NYSE-listed shares. ‘It’s not confusing to anybody. No brokerage firm would take an execution at those levels.’ He said his firm doesn’t trade when the NYSE isn’t trading, and doesn’t post unnaturally wide quotes. He speculated that in some cases the quotes are “stale,” left over from the previous afternoon.”

“Such wide spreads are increasingly common. They are a result of Nasdaq’s attempts to encourage its member firms to compete more for trading in NSYE-listed stocks. Earlier this year Nasdaq, at present a unit of the National Association of Securities Dealers, renamed the part of its market that trades NYSE and American Stock Exchange-listed stocks the Nasdaq InterMarket. Nasdaq trades listed stocks via the Intermarket Trading System, or ITS, which enables a customer of any participating market to reach a quote displayed on another.”