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February 1, 2001

At Deadline

By John A. Byrne

SuperMontage

*Nasdaq's SuperMontage is a step in the right direction for many pros. The soft CLOB, or voluntary limit order book component, pleases some. But Nasdaq's continuing technological setbacks may not augur well for the immediate future. "Nasdaq wants to be the superbox in the listed and OTC world. But recent experience would make you question that," said Lee Korins, president of the Security Traders Association, referring to Nasdaq's delayed introduction of SuperSOES.

Aldo Parcesepe, manager of Nasdaq trading at Bear Stearns & Co., says Nasdaq will be unable to successfully create a centralized electronic window. "Just because the system is available doesn't mean people are going to use it," he said. "Nasdaq wants to control everybody's quote and everybody's market. The system will not work." On the buyside, one pro argued that the SuperMontage does not go far enough. "I don't want to have to call a market maker or an ECN to get to it," said Jennifer Setzenfand, a trader at Federated Investors, in Pittsburgh, Pa.

CHX Blow

*The Securities and Exchange Commission dealt a blow to the Chicago Stock Exchange's Nasdaq trading program with its approval of SuperMontage. In dismissing a key CHX objection to the new Nasdaq system the regulator relegated the principal orders of CHX specialists to the end of the SuperMontage order queue. Other traders' orders, including those of ECNs, get filled first, even if the CHX orders arrive first.

Last in line means CHX dealers could see fewer orders in a SuperMontage world. "It's not good news," said Paul O'Kelly, executive vice president for market regulation and legal affairs at the exchange. "It's going to make [the specialists'] proprietary trading more difficult." O'Kelly vows to fight on. He says the CHX will raise the issue in upcoming meetings with the participants in the Unlisted Trading Privileges (UTP) Plan. That includes Nasdaq and other regional exchanges. "There will have to be amendments to the UTP Plan," O'Kelly said.

Bulletin Board

*SunGard Trading Systems has joined the race to automate trading in the Bulletin Board market. According to president Tom King, the company's B-Net agency order routing network has been modified to work as an electronic trading system similar to Nasdaq's SelectNet. It is being beta-tested by a few Bulletin Board market makers. SunGard's move mirrors those of Nasdaq and Pink Sheets, which already supply OTC dealers with screen-based quotation systems. Both players are readying electronic trading networks.

OTC dealers, which now execute all their Bulletin Board trades over telephones, say a screen-based system is sorely needed. Volume has been on the upswing in recent years and exploded in 2000. SunGard's B-Net, competing with Nasdaq's ACES, moves about 250,000 agency trades per day among its subscribers. The service will ultimately compete head-to-head with Nasdaq's SelectNet (or SuperSOES, if that system is implemented) which facilitates most dealer-to-dealer Nasdaq trades, according to SunGard.

Specialists

*Barring a last minute change of plans, another New York Stock Exchange specialist, Benjamin Jacobson & Sons, is getting acquired. Goldman Sachs Group has concluded a deal to purchase Benjamin for $250 million in stock and cash. The acquisition follows Goldman's purchase of Spear, Leeds & Kellogg Specialists last year.

The latest addition would make the Spear, Leeds and Benjamin Jacobson combo the number two Big Board specialist firm after LaBranche, as measured by the number of stocks traded. Benjamin Jacobson handles about 90 stocks on the Big Board. LaBranche took the number one position when it recently acquired Robb Peck McCooey Specialist Corp. The Goldman acquisition comes as consolidation among Big Board specialists continues because of the need for more capital and economies of scale. The deal is subject to regulatory approval.