The board of the National Association of Securities Dealers, which operates the Nasdaq Stock Market, is expected to vote Thursday on a proposal to team up with some of Wall Street's biggest brokerage firms that are developing a computerized trading system to compete with the New York Stock Exchange, sources said.

The electronic trading system, called Primex, aims directly at the heart of the Big Board's franchise as the central marketplace for some of the nation's biggest stocks, including International Business Machines Corp. and General Electric Co.

If it works, the system would threaten the NYSE's current way of doing business--where people, not computers, are at the center of every trade. Primex is owned by several of the Big Board's largest members, who would then have a vested interest in executing trades on their own market. Primex's members account for about 60 percent of all of the stock trades processed on any given day.

The firms involved--Merrill Lynch & Co., Goldman Sachs Group Inc., Morgan Stanley Dean Witter & Co., Citigroup Inc.'s Salomon Smith Barney, and Bernard L. Madoff Investment Securities--all declined to comment on the proposal tonight, as did officials at Nasdaq. NYSE officials could not be reached for comment.

The electronic trading network would take advantage of several recent changes made by the NYSE and the Securities and Exchange Commission that open up competition in stock trading. Until last week, all NYSE members were bound by something called "Rule 390" that prohibited them from trading any NYSE-listed shares that had joined the exchange before 1979 anywhere but on the Big Board during the hours the NYSE is open. And today, the SEC voted to expand the Intermarket Trading System, which links stock markets, to enable NASD members to trade all stocks listed on the NYSE.

The new trading system would provide the first direct test of the long-running debate between the NYSE and Nasdaq over which method of trading stocks is best for investors. Primex is designed to become an electronic version of the NYSE, basically funneling orders in front of an electronic crowd and letting them bid for the best deal.

The NASD board meeting to consider the Primex link was first reported today by Bloomberg News.

Primex's challenge to the NYSE is still more of a possibility than a reality, since it isn't clear yet whether Primex's software will deliver on its promise to execute trades more efficiently. It is expected to launch in mid-2000.

But one example of the impact of electronic trading can be seen on Nasdaq, which already competes with several electronic communications networks for trades in shares of stock listed on its exchange. The competitors now handle about a third of all trades in Nasdaq stocks.

On the Primex system, the best prices would be put before an electronic crowd, who would compete through their computers for the best offer. In comparison, the NYSE's auction system is constrained by the prices being offered by brokers gathered on its floor in lower Manhattan.

A slew of new electronic communications systems match up buyers and sellers of stocks at prevailing market prices. But they have been criticized because they lack enough orders to prevent a stock from swinging wildly. Primex not only links buyers and sellers, but also allows them to bargain with one another for the best price--much as people one-up each other on eBay, the online auction site.

Primex is expected to be one of the strongest contenders in this competitive new electronic arena, because its high-profile backers are bound to provide an abundance of orders.

The Big Board is fighting back on several fronts. Chairman Richard A. Grasso said last month that he would develop an electronic trading network of his own, to let investors trade orders of 1,000 shares or less electronically. This proposal would allow these orders to go through automatically without help from market makers, known as specialists, who keep trades flowing in the NYSE floor system.

Nasdaq also has an agreement with a company called OptiMark Technologies Inc. to use its trading system starting sometime next year.

The OptiMark system, designed to let big institutional investors trade large blocks anonymously, lets brokers express their preferences through a computer for trades of Nasdaq stocks. Merrill Lynch and Goldman Sachs also have invested in OptiMark. But since it started operations on the Pacific Exchange earlier this year, it has not traded as many shares as it had originally projected.

Meanwhile, the SEC today also proposed a rule that would allow regional exchanges to trade NYSE-listed initial public offerings the first day of trading. Currently, the regional exchanges have to wait a day to trade any listed IPO.

"As we enter a new century, our markets must not be fettered by impediments or anti-competitive practices that stand in the way of our market's own natural genius," said Arthur Levitt Jr., chairman of the five-member commission.

The commission also approved the release of a "concept report," which outlines the debate over how much stock markets can charge for stock quotes and how that revenue should be used. The SEC staff said the document is intended to stimulate debate and set the framework for an approach to the stock quote fees issue.

Staff writer Sandra Sugawara in Washington contributed to this report.

CAPTION: The New York Stock Exchange's traditional trading methods would be challenged by Primex.