SEC Sets Jan. 10 Vote on Nasdaq's SuperMontage Trading Plan
Washington , Jan. 4 (Bloomberg) -- The Securities and
Exchange Commission scheduled a vote next Wednesday on a
longstanding Nasdaq Stock Market proposal to centralize its
trading, a move experts say is a signal the agency is likely to
approve the plan.
The so-called SuperMontage proposal, originally proposed in
October 1999, has been changed eight times by Nasdaq following
criticism from Reuters Group Plc's Instinet Corp. and Senate
Banking Committee Chairman Phil Gramm, a Texas Republican.
SEC Chairman Arthur Levitt, who plans to retire by mid-
February, has said the proposal would increase the visibility of
the best prices on the second largest U.S. stock market.
``The fact they've scheduled a vote indicates they've
resolved any concerns about the proposal and are likely to approve
it,'' said Ed Fleischman, an SEC commissioner from 1986 to 1992.
The agency issued a notice today on the meeting date.
The Nasdaq plan would have Nasdaq dealers' screens list the
three best buy and sell quotes from different trading venues, and
not just the single best orders. The SuperMontage system would go
into effect at the end of the year, Nasdaq officials have said.
Instinet, the largest electronic trading network, has argued
that it and other networks would lose business to Nasdaq as a
result of SuperMontage at a time when second-largest U.S. stock
market plans to become a private, for-profit competitor. The
proposal has drawn support from many brokerages, who would
continue to play a key role in matching orders.
Some mutual fund companies have given restrained support for
the plan.
``While it's probably a better system than we have today, it
doesn't go far enough,'' said Gus Sauter, a managing director at
the Vanguard Group, the second largest U.S. mutual fund company.
``Certain players are disadvantaged.''
Vote Before Inauguration
The SEC vote would take place 10 days before the inauguration
of President-elect George W. Bush, a Republican. Levitt and two of
the other three SEC commissioners are Democrats.
The SEC chairman has said he expects the agency to act on
several pending proposals, such as curbs on political
contributions by money managers for public pension funds, before
he steps down next month.
Nasdaq's proposal caps a decade-long effort by the second-
largest U.S. stock market to address fragmentation of its trading
among different venues. The SuperMontage plan, first proposed in
October 1999, followed a series of earlier Nasdaq plans that
failed to win support.
During his seven-and-a-half-year tenure, Levitt has never
scheduled action on a proposal he's supported without having the
votes needed for approval.
Nasdaq has argued that the centralized display will help
investors by letting dealers electronically fill orders from
different trading venues without having to search them for the
best prices.
Expanding Market Share
Instinet and some other trading systems, known as electronic
communications networks (ECNs), have said that Nasdaq could use
the SuperMontage to expand its market share and take business away
from them. These ECNs, which account for about a third of Nasdaq's
volume, automatically match buyers and sellers.
Instinet President Douglas Atkin also has said that the
proposal, while voluntary, would effectively force the ECNs' best-
priced orders to be executed through Nasdaq.
Bloomberg Tradebook, an ECN owned by Bloomberg News's parent
Bloomberg LP, originally opposed the proposal but decided last
September to support it in response to changes proposed by Nasdaq.
Nasdaq's latest proposal allows any order to be matched with
another order at the best available price, regardless of the time
it was entered.
This removes any incentive for investors to try to improve on
the displayed price because their order wouldn't have to be
immediately filled, even if they entered it first, Vanguard's
Sauter said.
Levitt last April said the SuperMontage plan, ``while
controversial in some respects, offers the possibility of
significant gains in transparency in the (over-the-counter) market
and is generally supported by the industry.''
SEC deputy market-regulation director Robert Colby said last
month that SuperMontage would make for a more efficient market,
though it would not be a cure-all.
``The Nasdaq market needs more investor interaction,'' the
New York Times quoted him as saying in an interview, ``but it's
not a huge step forward in that direction. The question is, is a
small step better than a larger step?''
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