Commentary

Elaine Wah

Modern Markets, Modern Metrics - A Blog By IEX

In this blog by IEX's Elaine Wah, the newest public exchange looks to refute public claims that the metrics it uses are designed to inflate its own volume numbers and mislead people.

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August 31, 2000

ECNs' Super Fight Aimed at Congress

By William Hoffman

Lobbying 'Onslaught' on Nasdaq's Super Montage Shifts Into Gear

ECNs are prepared to fight in Congress if the Securities and Exchange Commission lets Nasdaq have its way.

The SEC is expected to rule any day now on a Nasdaq proposal to introduce a "super montage" on the computer screens traders use.

"Congress is not immune to our onslaught," said Joel Steinmetz, senior vice president of equities at Instinet Corp. in New York. Steinmetz said Instinet and other electronic communications networks have "begun to take steps to address this in Congress," but he declined to be more specific.

Last month, a petition by Senate Banking Chairman Phil Gramm (R-Texas) and House Commerce Committee Chairman Thomas Bliley (R-Va.) to extend the comment period met with a positive response from SEC Chairman Arthur Levitt. The final date was pushed back an additional two weeks to September 15.

ECNs are likely to lobby in Congress, highlighting what they see as "the monopolistic design" of Nasdaq's super montage, industry observers say. "I think the SEC has been quite receptive to our issues," Steinmetz said. "I'm not sure whether that means they will or will not approve the super montage."

ECN's stepped up their war of words with full-page ads in The Wall Street Journal and the The Washington Post in August as well as in the Convention Daily distributed at the Republican Convention in Philadelphia.

The super montage is Nasdaq's attempt to win back some of the estimated 30 percent of trading volume it lost to ECNs over the last three years. Revamped computer screens would include multiple buy and sell quotations, and offer all data about every Nasdaq stock in one location.

But officials of ECNs argue that the super montage amounts to a government-sponsored monopoly for Nasdaq. James H. Lee, president of Momentum Securities, said, "Until [Nasdaq] can demonstrate that their infrastructure is at least on a par with what [ECNs] can deliver, then to use what is basically a governmental mandate to provide this is a disservice."

Harvey Houtkin, chief executive of All-Tech Direct, Inc., is more blunt. "Nasdaq has not earned the right to have the super montage," the Montvale, N.J.-based day trader executive said. "It would be a mockery of everything that makes sense."

The National Association of Securities Dealers did not respond to a request for comment on the ECNs' opposition to their plan.

ECN executives met with Arthur Levitt in July in Washington, to press their case. Steinmetz said that notwithstanding the SEC's polite reception, ECNs worry the commission may decide that even with its problems, the super montage is better than the current system.

"I think if they don't address [ECNs' competitive concerns] now, they won't be addressed," Steinmetz said.

Some industry professionals think the ECNs' arguments are flawed.

"It's somewhat disingenuous of the ECNs to be complaining about this," said Denis P. Kelleher, chief executive and founder of Wall Street Access, an independent broker dealer and execution specialist in New York. "They made their living off the inefficiencies of [Nasdaq], and now they're unhappy that Nasdaq is trying to do something about it."