Nasdaq set to launch $170M trading system

After three years and US$170 million spent on systems development that included more than 200 new servers, The Nasdaq Stock Market Inc. yesterday said it is prepared to launch its new SuperMontage electronic order display and execution system on July 29.

At a press conference held at Nasdaq's Times Square market site, Nasdaq executives said SuperMontage, which is a real-time, fully integrated order display and execution system, was built in response to issues such as decimalization (the switchover from reporting prices in fractions) and increased trade volume. It will be rolled out a handful of stocks at a time.

"This should reduce intraday volatility through more information, liquidity and depth," said Nasdaq President Richard Ketchum.

The backbone of Nasdaq's telecommunications will be managed by WorldCom Inc. and will connect 1,000 trade locations across the country to a main data center in Trumbull, Conn., and a backup site in Maryland. Asked whether he was concerned by WorldCom's recent fraud troubles with the Securities and Exchange Commission, Nasdaq CIO Steve Randich said the network is "separate and distinct ... and the WorldCom employees are dedicated to the account."

"We're confident WorldCom will be our provider for the next several years," he added.

Nasdaq plans to open SuperMontage on July 29 with a few test stocks and then include about 10 additional stocks every week thereafter. Ketchum said he plans at some point to list New York Stock Exchange securities but had no definite timeline.

Nasdaq's current order display system, SuperSOES, will continue to be used for transactions of less than a million shares. It displays the best proposed purchase and selling prices for a stock, along with who is participating in the market for that stock and each issue's most recent transaction. SuperMontage will aggregate the top five proposed purchase and selling prices for a stock, giving traders more access to possible trades and increasing transparency, said Adena Friedman, executive vice president of data products. The system also offers anonymity to buyers and sellers during the pretrade process.

"It shows if there are a lot people interested in buying or selling a particular stock out there," Friedman said.

Randich said the technology behind SuperMontage represents a doubling of Nasdaq's network bandwidth and offers more scalability for adding servers and processors. Randich said SuperMontage's processing ability is nearing 5,000 transactions per second.

SuperMontage's back-end systems consist of 22 Stratus Computer Corp. Continuum Series 400 servers supporting various applications, 165 Dell servers running Windows 2000 to support new electronic products and surveillance software, and 24 Hewlett-Packard Co. NonStop S86000 servers with 16 processors each. Randich said Nasdaq will be the first commercial customer to deploy HP's latest high-end server and said it has performed well in processing performance tests.

Nasdaq also upgraded its Unisys Corp. Model 6800 mainframe to Model 7802, increasing processor speed from about 300 MHz to 600 MHz.

Ketchum believes the mere expectation of increased competition from SuperMontage had at least some contributing role to recent consolidation among electronic communications networks (ECN), such as the Instinet Group Inc.'s buyout of Island ECN last month (see story).

In turn, ECNs have complained that Nasdaq's fee scale for SuperMontage favors market makers such as Merrill Lynch & Co. and Goldman, Sachs & Co. And at least one ECN, Instinet, has said it is seriously considering not using the new platform.

Ketchum said yesterday that ECNs are among Nasdaq's "more valued customers" and that they have been participating in weekly Saturday tests of the system along with 100 other customers.

"If someone doesn't have an order in SuperMontage, at the very least they'll have to explain to their customer why," he said.

The Securities and Exchange Commission is also requiring Nasdaq's parent organization, the National Association of Securities Dealers Inc. (NASD) in Washington to offer an alternative trading platform to SuperMontage by its July 29th opening. NASD plans to offer the Alternative Display Facility (ADF) for posting quotes, and reporting and comparing trades for those who don't want to participate in SuperMontage.

"All indications from NASD ... is that they're ready to launch ADF," Ketchum said.

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