SEC Approves Nasdaq Plan for Central Display of Best Quotes
Washington, Jan. 10 (Bloomberg) -- The Securities and
Exchange Commission approved Nasdaq Stock Market's plan to
centralize display of its best stock quotes, overriding opposition
from automated trading networks that compete with Nasdaq.
The SuperMontage plan, due to be put into effect at the end
of the year, will make the three best customer orders for each
stock more visible to investors on Nasdaq, the second-largest U.S.
stock market.
``We expect SuperMontage to increase transparency for
orders,'' said Annette Nazareth, SEC market regulation director.
The vote was a limited victory for SEC Chairman Arthur
Levitt, who has fought a long-running battle to get the securities
industry to increase price competition by centralizing U.S. stock
trading. Levitt will be retiring in the next few weeks.
Nasdaq screens now display only the single best buy and sell
orders, so investors looking for the next-best quotes must search
the so-called electronic communications networks, or ECNs.
The ECNs, which automatically match buy and sell orders,
account for about a third of Nasdaq's volume. Reuters Group Plc's
Instinet Corp. and other ECNs have expressed concern that they
would lose business under the SuperMontage plan.
The SuperMontage, originally proposed in October 1999, was
changed eight times by Nasdaq in response to criticism from the
ECNs and Senate Banking Committee Chairman Phil Gramm.
The Nasdaq plan seeks to link scattered markets created by
the nine screen-based ECNs and dozens of dealers filling orders
from their own inventories. Under the plan, the ECNs and dealers
can voluntarily enter quotes on SuperMontage.
Competition
Instinet, the largest ECN, has argued that Nasdaq is
exploiting its size to try to put some of its trading rivals out
of business. Instinet President Douglas Atkin said SuperMontage,
while voluntary, would effectively force ECNs to surrender control
of their best-priced orders by routing them through Nasdaq.
Several ECNs joined Instinet in opposing SuperMontage,
though Tradebook, which is owned by Bloomberg News' parent
Bloomberg LP, broke ranks and supported the latest version.
Nasdaq plans to test SuperMontage with brokerages before
implementing it in the fourth quarter. By that time, Nasdaq is due
to be a private, for-profit company that will offer trading in
decimal price increments.
Nasdaq officials have said they might eventually consider
trying to extend the display of best orders to six places from
three. They said SuperMontage will help investors by narrowing
trading spreads, the difference between buying and selling prices.
``Any time you increase the incentive for investors to enter
priced orders, you increase the likelihood that spreads will
narrow,'' Nasdaq President Rick Ketchum said.
Mixed Reviews
Brokerages endorsed SuperMontage. Under the plan, dealers
will be able to fill large orders more quickly by electronically
matching quotes from the consolidated display on Nasdaq screens.
Mutual fund companies offered mixed reviews. They praised the
trading anonymity granted by SuperMontage. Fund companies and
other institutions prefer to trade anonymously, as they can on
ECNs, to protect their investing strategies.
Mutual funds objected, though, that SuperMontage doesn't
ensure that investors who offer the best quotes on a stock will
get their orders filled. The plan lets dealers and institutions
that match an individual investor's best quote get their orders
executed ahead of his.
``This is another land grab by Nasdaq on behalf of its
dealers,'' said Harold Bradley, a senior vice president at Kansas
City-based American Century Investment Management, one of the
largest no-load mutual fund companies.
Earlier attempts by Levitt to get U.S. stock markets to
consider electronically linking all trading were scuttled by
opposition from the New York Stock Exchange and Senator Gramm.
Nasdaq is introducing SuperMontage at the same time that the
NYSE is moving to open display of its specialists' order books.
Nasdaq suffered a public relations blow this week when the
SEC released a study showing that investors can expect to get
better prices on the NYSE than on the Nasdaq. The report said
investors who trade 300 shares of most Nasdaq stocks can expect to
pay as much as $16.50 more than they would when trading a
comparable NYSE security.
© Copyright 2000, Bloomberg L.P. All Rights Reserved. |
