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July 31, 1999

Chicago Stock ExchangeSlams NASD's SOES Plan

By Peter Chapman

The Chicago Stock Exchange has taken fresh aim at the National Association of Securities Dealers over SOES, calling for the Securities and Exchange Commission to reject the NASD's plan to reconfigure the system in tandem with SelectNet.

The plan would permit the automatic execution of up to 9,900 shares a trade on a revamped SOES, up from the maximum 1,000 shares at present. But the CHX, seeking to capitalize on unlisted trading privileges (UTP) in Nasdaq stocks, is upset that the current plan would still not give the exchange a direct SOES connection.

The CHX, which trades about eight million Nasdaq shares daily, up from one million shares twelve months ago, has lobbied for several years to have a direct connection for its members to SOES.

"The Chicago Stock Exchange wants to play in our sandbox," said an official at the NASD who declined to be named. "They want unfettered access, but that is just wrong."

"We will work with them towards a fair and reasonable interconnection," said the NASD source, noting that the cost of that arrangement would have to be shared by the CHX.

"[In the past] SOES had been for the sole use of professional traders," noted Andrew Kolinsky, executive vice president for marketing and operations at the CHX.

In its latest outburst, the CHX complained that specialists on its floor are entitled to the same access to SOES as electronic communications networks. ECNs, which are regulated as broker dealers, trade up to 30 percent of Nasdaq stocks. The CHX said that unless it is granted SOES access "on the same basis and with the same privileges afforded ECNs" it would "cripple the CHX's UTP program."

The CHX's efforts on SOES come as the exchange enjoys some nominal success trading Nasdaq stocks.

All told, there were nine specialist firms, out of 27 at the CHX, trading OTC stocks at the exchange last month. The number participating is expected to jump to 13 this month as the roster of stocks in the program doubles from 500 to 1000. There are 27 specialist firms at the CHX.

The CHX may see a new turn in the controversy. "I think we'll make progress on this issue," the NASD official said.