Nasdaq Stock Market Inc. announced changes to its proposed SuperMontage front-end trading system after operators of private trading networks and other critics raised concerns about the technology.
Companies that operate electronic communications networks (ECN), in which investors trade directly with one another, have complained that SuperMontage would discriminate against their trading systems, because Nasdaq has been planning to automatically place ECNs that charge fees at the bottom of the list of available trades. ECNs use Nasdaq to try to find buyers and sellers for investors who can't find a match themselves.
As a result of the criticism, Washington-based Nasdaq said ECN-generated prices will be listed among the other trades as the default setting in SuperMontage, and users will be able to create their own views on-screen.
"On further reflection, it was determined that it was not Nasdaq's role to determine the significance of [ECN] access fees," Nasdaq President Richard Ketchum said during a recent teleconference.
Ketchum added that SuperMontage users will be able to choose whether they want trades listed solely by price; by price, with ECNs listed last; or by some other measure, such as the size of the trade.
Ketchum said SuperMontage will give traders more detailed information about the stock market than they get with Nasdaq's current SelectNet front-end system. The additional information can be bought by ECNs and other market participants, who can then provide more detailed displays to traders or use the information to improve their order-routing capabilities, according to Ketchum.
The modifications being made by Nasdaq satisfied one key ECN - Bloomberg Tradebook LLC in New York.
Nasdaq's announcement "addresses the concerns we had," said Kevin Foley, chairman and CEO of Bloomberg Tradebook, a subsidiary of New York-based Bloomberg LP.
But in a statement, Doug Atkin, CEO of New York-based Instinet Corp., called Nasdaq's latest proposal "more of the same" and said he still isn't satisfied with the SuperMontage plans, which have gone through seven amendments since they were originally submitted to the U.S. Securities and Exchange Commission (SEC) last October.
In particular, Atkin said, Nasdaq's decision to let users choose how to display orders doesn't go far enough to protect investors who list their trade offers with ECNs.
"We agree with Nasdaq that there should be choice," he said. "However, instead of giving market makers the choice of stepping ahead of investors' orders, Nasdaq should give investors the choice of having their orders treated fairly. We believe that investors' orders should remain at the front of the line."
A Strong Force
Instinet is the largest of the ECNs, said Dana Stiffler, an analyst at Newton, Mass.-based Meridien Research Inc. "On their own, they're a significant market," she said. "And given their size, the SEC will have to pay attention to their objections."
If the SEC does side with Nasdaq and give final approval to the SuperMontage proposal, development of the new system should be finished by late next summer or early next fall, according to Nasdaq officials.
The modifications "will involve significant additional work but will not result in delay," Ketchum said.