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Strategies & Market Trends : The Final Frontier - Online Remote Trading -- Ignore unavailable to you. Want to Upgrade?

To: Morpher who wrote (8311)	7/3/2000 2:33:48 PM
From: TFF	Respond to of 12617

Island Eliminates Possibility of Crossing Markets AUDIENCE Anyone who enters orders into the Island Book. SUMMARY In connection with Island’s decimalization plan, Island is changing the way it handles orders that would potentially lock or cross the market. Currently, Island systemically rejects any order entered during market hours that would lock or cross the NASDAQ inside market. Beginning on July 3, 2000, however, Island will begin accepting these orders and representing them on NASDAQ to the maximum extent possible without causing locked or crossed markets. This change will reduce the need for subscribers to re-price their orders in order to conform to NASDAQ’s lock/cross rules since Island will proactively prevent the creation of locked or crossed markets automatically. HOW DOES THIS AFFECT ORDER ENTRY? There will be no change in how subscribers and non-subscribers interact with Island, subscribers will continue to enter orders as they currently do and may only notice a reduced number of rejected orders. Subscribers do not need to make any changes to support this new feature. Island is not making any changes to any protocols or data-feeds. Subscribers whose order routing algorithms currently depend upon Island’s system to reject orders that would lock or cross the market during market hours should consider whether this change affects their systems. If you think this change could impact your systems, please feel free to contact our technical department for assistance. HOW WILL IT WORK? When Island receives an order that would lock or cross the Nasdaq market, Island’s quote updating system will now compute the optimal display price to send to NASDAQ which will represent the order to the fullest extent possible within the limitations of NASDAQ’s systems and rules. In all situations, however, Island subscribers and non-subscribers will only receive an execution at the order entry price. Current Island lock/cross order entry behavior during market hours: The inside quote for MSFT is 73 ¾ bid to 74 offer. A displayable order to buy MSFT at 74 1/4 is entered into Island, crossing the NASDAQ inside. If no immediate match is available, the buy order will be returned to the subscriber with a U R Out reason of “would lock or cross market”. New Island lock/cross order entry behavior during market hours: The inside quote for MSFT is 73 ¾ bid to 74 offer. A displayable order to buy MSFT at 74 1/4 is entered into Island. If no immediate match is available at 74 1/4 or better, the buy order is added to the Island book. Island updates the ISLD quote on NASDAQ to 73 15/16th bid, reflecting the Island 74 ¼ buy order to the greatest extent possible on NASDAQ without locking (1/16th point below the current inside offer in this case). The Nasdaq inside offer changes to 74 1/8, the ISLD bid immediately updates to 74 1/16. Island receives an order through SelectNet to sell at 74 1/16, the two orders are matched at 74 1/4. Note in the above example that Island will “track” any and all NASDAQ inside quote changes so that at every moment the ISLD quote will be representing the order on NASDAQ to the fullest extent possible. In addition, the SelectNet order is executed at the actual price thus giving the non-subscriber the benefit of price improvement opportunities on Island. WHY ARE YOU DOING THIS? Island’s efforts to fully represent decimal priced orders within the limitations of NASDAQ’s fraction-pricing system resulted in significant changes to our quoting methodologies. This change is one of the “fringe benefits” that will accrue to all Island subscribers, whether they participate in the decimalization program or not. QUESTIONS If you have any questions or comments, please send them to subscriber@island.com. Thank you for choosing Island.