This has been an unkind summer for Nasdaq, the nation's second-largest stock market, as a combination of software bugs and an errant squirrel with an appetite for power cables resulted in a series of market outages.

Although the problems infuriated Nasdaq traders, the situations were unusual and probably don't provide an immediate opening for potential competitors, analysts say.Private computerized trading systems, including the Reuters-owned Instinet System, are growing rapidly and there's some debate within the industry as to whether these upstarts would eventually steal market share from Nasdaq.

While Instinet's growth is substantial - revenues at the brokerage rose by 97 percent last year - most analysts say these electronic trading systems can't be viewed as true competitors to Nasdaq.

As it stands now, the growth of Instinet and the other systems is tightly linked to the fortunes of Nasdaq and the broader influence of pension funds and other institutional traders in the markets, analysts say.

"If Nasdaq becomes unreliable, the crossing networks and Instinet don't work," said Peter DaPuzzo, senior managing director at Cantor Fitzgerald Securities of New York and an expert in over-the-counter trading systems.

These trading systems rely on huge market centers such as Nasdaq, which provide the best pricing information for Nasdaq-listed stocks, he added. Without those prices, traders are reluctant to enter the market, fearful of suffering losses.

Unlike traditional exchanges, Nasdaq has no trading floor; some 470 securities brokers make markets in Nasdaq-listed stocks such as Microsoft Corp. and Apple Computer Inc. via telephone or by posting orders in Nasdaq's computer system.

Nasdaq's growth has been stunning, jumping from 1.4 billion shares in 1975 to record trading volume of 66.5 billion shares last year. Few outages have plagued the market's 23-year history, said Joseph Hardiman, president and chief executive of the National Association of Securities Dealers in Washington, D.C., the industry group that operates Nasdaq.

The growth has led Nasdaq to embark on an upgrade of its computer system, and that upgrade partly is to blame for one of this summer's outages.

Nasdaq didn't open for 21/2 hours on July 15 due to problems with new software installation for the computer system's upgrade. Similar bugs bedeviled auxiliary Nasdaq trading systems the day before.

On Aug. 1, a squirrel chewed through power lines at Nasdaq's computer center in Trumbull, Conn., causing a 34-minute outage. The same day, a human error at Nasdaq led to a flubbed halt in trading of a Canadian technology company's stock, forcing the market to cancel trades of 221,000 shares. Options dealers complained the error contributed to market losses of about $2 million.

The Nasdaq outages led some industry officials to speculate that Instinet or other electronic trading systems might emerge as alternatives, since Instinet could still trade Nasdaq stocks during the outages.

"What happened is Nasdaq was down but Instinet was open," said Seth Merrin, president of Merrin Financial Network in New York, which operates a private trading system for major brokerage firms. Merrin said Nasdaq brokers "were left out in the cold" and that "Instinet was making the market" during the outages.

Merrin said the outages might lead large institutional investors to consider alternative trading systems if Nasdaq's problems persist.

Other analysts - including Instinet executives - strongly disagree that Instinet competes with Nasdaq.

Although Instinet managed to trade during the Nasdaq outages, "Our business just plummeted," said Andrew Baxter, vice president at Instinet.

"And the reason is because Nasdaq is the marketplace which provides the prices in which traders have confidence. And when those prices are not there, they are less prone to be active," Baxter said.

Instinet has found a niche with pension fund managers and other institutions that favor its systems for certain trading strategies, Cantor's DaPuzzo said.

DaPuzzo added that no electronic trading system can replace the judgement and skill of a human broker working to place a large and complex transaction in the marketplace.

Instinet doesn't release trading volume figures, but the General Accounting Office reported that 1991 volume was 2.2 billion shares, rivaling volume of the American Stock Exchange, which totaled 3.4 billion that year. Nasdaq's volume was 41.3 billion and the New York Stock Exchange, the nation's largest, was 45.3 billion that year.

Since then, growth of Instinet has been tremendous: Revenues nearly doubled to $188 million last year, according to its parent company, Reuters Holdings PLC.

One leading market expert says the simple design of the Instinet and other direct electronic trading systems leaves them less prone to failure and errors.

"The Nasdaq system, as presently designed, perpetuates the old telephone trading system. And therefore, its software and hardware systems are far more complex than what they would have to be if it had been designed like Instinet, which has direct electronic trading," said Junius "Jay" Peake, a former NASD vice chairman and now a professor at Greeley University of Northern Colorado.

Nasdaq's Hardiman disagreed, saying he has "a philosophic difference" with Peake and that the market's current design contributes to its depth and ease of trading.