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August 31, 1999

At Deadline

By John A. Byrne

Stormin' Norman

The annual conference of the Security Traders Association - which is scheduled for Friday Oct. 15 through Tuesday Oct 19 - is promising to live up to its excellent reputation. There are topical workshops, including a Monday session entitled, "Transaction Cost Analysis" and exciting panel discussions. On the same day, Douglas Atkin, chief executive of Instinet Corp., hosts a panel entitled, "Should Market Centers Be For Profit." On Tuesday there is a panel discussion on best execution.

On Sunday morning the keynote speaker is General H. Norman Schwarzkopf, former commander-in-chief of operation Desert Shield and Storm. Stormin' Noman is a motivational speaker on the conference circuit. In fact, some overly enthusiastic army staff in New Zealand spent about $40,000 (NZ) to hear Schwarzkopf, former Russian leader Mikhail Gorbachev and others recently at a conference in Auckland, New Zealand. Defense Minister Max Bradford was not amused. He cut the Defense budget by $100,000 after finding out.

Stock Exchanges

The definition of what constitutes grounds for registering as a stock exchange is drawing the attention of every conceivable stock trading computer system. As a result of Regulation ATS, The Securities and Exchange Commission has sparked a rush of applications from officials of alternative trading systems that see themselves becoming stock exchanges. Significantly, says Orrick, Herrington & Sutcliffe, a securities law firm based in New York, the SEC has abandoned its old interpretation that an expectation of regular execution of orders at quoted prices was a required element of an exchange. These orders are the result of continuous two-sided quotations published by market makers and specialists.

Systems that meet the SEC's definition of an exchange include hit-or-take systems that permit subscribers to hit a bid or lift an offer displayed in a system. Other systems include crossing or matching networks. Systems that do not meet the regulatory definition of a stock exchange include single counterparty systems, bulletin boards, order routing systems and single dealer systems.

Extended Trading

Starting Oct.1, Nasdaq will likely take the first big plunge into extended trading hours. Officials said the exchange expects to keep the Nasdaq trade reporting and quotations systems open past the current shutdown times. That would extend the operation of the Automated Confirmation Transaction Service (ACT) to 6:30 p.m. instead of 5:30 p.m. and SelectNet until 6:30 p.m. instead of 5:15 p.m. Nasdaq also plans to extend the operation of Nasdaq Quotation Dissemination Service from 6:25 p.m. to 6:30 p.m. and its Trade Dissemination Service from 5:15 p.m. to about 6:50 p.m. (Eastern times.)

The changes, which are subject to approval by the Securities and Exchange Commission, would provide a centralized price-quote information for investors beyond the customary 4 p.m. market close. The move is in step with efforts by electronic communications networks as online investors increasingly demand after-hours trading.

ECN Outlook

The future of electronic communications networks rests on the shoulders of Nasdaq and the New York Stock Exchange, according to Meridien Research, a financial services research firm based in Newton, Ma. Once either of the two move to fully electronic trading systems, the ECNs special niche will disappear, a report published by the firm predicts.

"In the meantime, we expect to see significant consolidation in the ECN market. Until this happens, ECNs will account for an ever increasing share of Nasdaq trade volume," Meridien states. "In addition to Instinet and Island, we believe Archipelago, REDIBook and BRUT are the ECNs best positioned for growth over the next 12 to 18 months."

Octavio Marenzi, senior analyst and author of the report, says a "common misconception" is that ECNs are taking liquidity away from Nasdaq. "In fact, the ECNs are adding efficiency to the market," he added. "The pressure that ECNs bring to bear is squarely on the market makers, who can no longer control pricing. With some ECNs already filing for exchange status, it appears that the electronic network will take an increasingly greater role in the future of equity trading."