TowerGroup Expects SuperMontage to Pose Strong Competition for ECNs
New Research Says Launch of SuperMontage Should Stem Nasdaq's Loss of Market Share to Electronic Communications Networks
NEEDHAM, Mass., Aug. 5 /PRNewswire/ -- Developed at a cost of more than $100 million, SuperMontage represents Nasdaq's effort to regain its prominence as a consolidated pool of liquidity for Nasdaq securities. In new research published today, TowerGroup forecasts that Nasdaq's efforts will succeed -- and predicts that SuperMontage will regain market share at the expense of competing electronic communication networks (ECNs).
The impending launch of SuperMontage represents a watershed event for Nasdaq, and marks the culmination of more than three years of effort to develop a trading system for both market makers and ECNs. All market participants -- including dealers, investors, regulators and other execution venues -- are watching with great anticipation. In its new research, TowerGroup reviews the impact that SuperMontage will have on the trading of Nasdaq securities and, ultimately, the entire structure of the equity markets. Highlights of the findings include:
* SuperMontage will prosper at the expense of competing ECNs,
particularly those that cannot present a compelling value proposition
to users. The system's added trading functionality (such as depth of
market, hidden reserves and pretrade anonymity) will go a long way
toward stemming Nasdaq's loss of market share. Specialized business
models that have allowed ECNs to survive in the past, such as targeting
retail order flow, will not be enough.
* While ECNs should anticipate serious competition, their future is not
all "gloom and doom." Despite the expected success of SuperMontage,
ECNs can continue to offer clients several attractive value
propositions. ECNs must work to rapidly adapt to the new market
structure, enhancing services to compete for order flow. Industry
observers should expect to see ECNs adding functionality, improving
customer service and offering lower price points for certain services.
* Over time, Nasdaq can be expected to significantly expand its suite of
executable products by providing clients with the ability to trade
non-Nasdaq securities on SuperMontage (including products listed on
both the New York Stock Exchange and American Stock Exchange).
"A cursory review of SuperMontage may result in the flawed assumption that Nasdaq has simply brought SuperMontage's functionality to the level that ECNs have provided to clients for years," said Andy Nybo, a TowerGroup Securities & Capital markets senior analyst and author of the research. "However, SuperMontage's impact on the equities markets will be driven by more than just increased functionality. The launch of SuperMontage will be the impetus behind an overall change in market structure, as market participants -- including dealers, ECNs, and exchanges-adapt their behavior in order to survive."
TowerGroup expects SuperMontage to begin trading in selected Nasdaq securities after its final approval by the SEC in the next few weeks. The rollout will eventually encompass all Nasdaq securities and, beginning in 2003, Nasdaq can be expected to offer trading in other exchange-listed securities. Once the system is fully up and running, Nasdaq's attention can be expected to turn to adding functionality and products -- a move that will have dramatic consequences for competitors, and ultimately may result in substantial shifts in market structures.
The report, "ECNs and SuperMontage: Coexistence or Competition?" is available for review by qualified members of the press.
About TowerGroup: TowerGroup provides a comprehensive range of research and advisory services focused on the financial services industry, bringing some of the world's largest financial services, technology, and consulting firms a deeper understanding of the business and technology issues impacting them. TowerGroup is headquartered near Boston, Massachusetts. Visit TowerGroup online at towergroup.com.
SOURCE: TowerGroup |
