Nasdaq May Drop Some Stocks

WASHINGTON — The group that runs the Nasdaq stock market is considering whether to remove about 3,400 small-company stocks from special over-the-counter listings as the nation’s second-largest stock market tries to distance itself from tiny speculative stocks.

Stock fraud frequently involves low-priced shares of such high-risk stocks, sometimes called penny stocks, that are thinly traded and loosely regulated. Two Nasdaq sources confirmed Tuesday that the board of the National Assn. of Securities Dealers--Nasdaq’s parent organization--will vote on the proposal to boot out the 3,400 or so stocks from the OTC Bulletin Board, an electronic market of about 6,800 securities.

The sources, speaking on condition of anonymity, said the board will vote on the proposal on Thursday.

The stocks that would be dropped also include many special shares of foreign companies. Market analysts said such stocks could still be listed on the so-called Pink Sheets, a less automated system not affiliated with Nasdaq--but would be more difficult to trade.

Neal Sullivan, executive director of the North American Securities Administrators Assn., called the proposal “a very positive step.” The proposal takes into account the “systemic nature of these problems,” he said.

Nasdaq runs the Bulletin Board, but its stocks are not actually listed on the Nasdaq exchange. The small companies don’t meet Nasdaq listing standards or don’t file financial disclosure statements with the Securities and Exchange Commission. The Bulletin Board stocks often are linked with Nasdaq’s name, however.

Under the proposal being considered, companies would have their stocks removed unless they agreed to file statements with the SEC or other financial regulators, according to Tuesday’s Wall Street Journal. In addition, brokerage firms could be barred from quoting prices for the stocks unless the brokers had current reliable financial information about the companies.

Spokesmen for Nasdaq and NASD Regulation, the self-policing arm of the securities dealers’ group, declined comment on the matter.

Regulators estimate that American investors are being defrauded of about $6 billion annually--three times the peak amount during the 1980s before enactment of the Penny Stock Reform Act of 1990.