FRAMINGHAM (08/18/2000) - Nasdaq Stock Market Inc. unveiled a new front end this week that promises to give market participants more information - and more tools with which to use that information.
But some Nasdaq participants - particularly electronic-communication networks (ECN) such as New York-based Instinet Corp. - have argued that the new system will be unfair to the ECNs.
SuperMontage promises to offer anonymity, deep market information and the ability for brokers to separate their own trades from those they execute for customers - all features that had previously been offered only through ECNs.
The Securities and Exchange Commission (SEC) will wait until the end of this month for public comments about SuperMontage and then, barring further amendments, will decide whether or not to allow Nasdaq to go ahead with it sometime in the next few months, according to SEC spokesman John Heine.
If SuperMontage is approved, the system could be up and running by the end of next year.
"What you're seeing here is one more step towards a better and more perfect marketplace," said Frank Zarb, chairman and CEO of the National Association of Securities Dealers (NASD), Nasdaq's parent organization. "We're moving in that direction, and nothing is going to stop it - no group is going to stop it."
But according to some ECNs, the NASD is abusing its regulatory power to tilt the playing field in Nasdaq's favor.
"In our view, the NASD should devote its efforts to projects that benefit investors ... instead of projects like the SuperMontage that exclusively serve its commercial interests," Instinet CEO John Oddie told the SEC.
According to Deborah Mittelman, Instinet's vice president of execution services, the main problem with SuperMontage is that Nasdaq becomes both a competitor and a regulator.
By law, brokers are required to give their customers the best possible prices.
Brokers who use ECNs to trade instead of SuperMontage may be forced to jump through more regulatory hoops to prove that they have done so, according to Mittelman.
Analysts said that ECNs might, in fact, lose revenues under SuperMontage.
"The ECNs are justified in their concerns," said Larry Tabb, an analyst at Needham, Mass.-based TowerGroup. But he added that although ECN revenues might be hurt under the new system, it would be good for the market as a whole.
"It seems like a no-brainer to us," said Brian Borders, president of the Association of Publicly Traded Companies, a trade association that represents mostly small to midsize corporations.
He said SuperMontage will lead to a more open market, greater stability and lower capital costs for companies that raise money by selling stock to the public.
"ECNs compete by innovating in the securities markets," Borders said. "We like the fact that the other market participants innovate in ways that raise the level of competition. Now I expect that the ECNs will put some of the money they're making to work and raise the level of technology."