Gene,
WHY? Well, if these ECN's actually participated in the SUPERSOES routing, what would the advantage be in using them? The SUPERSOES system is essentially making the NASDAQ a big ECN anyway
And WHY is it that ECNS have flourished the way they have over the last few years, taking substantial market share away from the dealers? The reason is very simple. MM quotes are an illusion while ECN quotes represent real bids and offers that are always liable for execution. ECNs don't post dormant quotes that may or may not be active. There is no invisible queue of orders piling up waiting for MMs to refresh their quotes, or decide not to. With ECNS what you see is what you get. If you hit a bid or offer that has not been canceled, and you get their first, you get filled.. period. And as soon as an bid or offer is taken out, it is gone. No ECN can stand alone blocking the movement of the market filling a token 100 shares every 17 seconds. They will be taken out in a heartbeat.
Sure SuperSOES is addressing some of these issues, but it also included a blatant attempt to give execution priority to the dealers by using ECN fees to lower the standing of ECNs in the execution sequence.
... and if these firms participate that helps NASDAQ move one step closer to becoming a big crossing network... which will eliminate ECN's and their profits... Which also explains why ECN's are against SUPERMONTAGE and SUPERSOES in the first place right?
Let me see... Say I started an ECN that has flourished because it offered a better execution system for traders than was being offered by Nasdaq itself. Now I am being offered a chance to participate in the new Nasdaq system being proposed, but as an inferior because instead of making a market I need to charge a small fee for the superior executions I provide. If I choose to participate the effect is going be my elimination; I will go out of business. Yeah!! That makes sense.. where do I sign up??
Oh yeah, then there is SuperMontage, which effectively incorporates a private ECN for the use of MMs only. It gives them anonymity, something they can have now by using the services of an existing ECN, but for a fee. It has a more elaborate structure that allows MMs to post not only their anonymous private ECN quotes, but also proprietary and agency quotes. All this extra information is going to be useful to traders, but the good stuff only applies to the first 3 price levels. And oh yeah, we are going to penny pricing soon, so the range of those three levels will cover all of two cents. Now if we incorporate the ECN fees in the quote montage, no ECN will ever make it into the top level where all the executions will take place... Hmmm that sounds like something ECNs should sign up for too. Looks like the folks at Nasdaq did some great system engineering on this one.
Dan |
