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March 1, 2001

Archipelago

By John A. Byrne

Archipelago Exchange, the all-electronic stock mart, is feeling the heat from critics. Nasdaq contends that the exchange, run as a joint venture between the Archipelago ECN (ARCA) and the Pacific Exchange, avoided serious scrutiny by filing a rule change, instead of a much meatier exchange registration with the Securities and Exchange Commission. Exchange registration would have required Archipelago to provide ownership and financial information.

Another critic, Knight Trading Group, said it is concerned about Archipelago's plan to charge access fees. Dealers have been at loggerheads with ECNs over access fees since the introduction of the order handling rules. Knight also attacked Archipelago for requiring firms to use ARCA's affiliated broker dealer, WAVE. Knight contends that puts Archipelago in a conflict of interest. Archipelago is planning to make a formal response soon to Nasdaq's and Knight's comment letters to the SEC.

Japan Debut

Instinet moved a step closer to becoming the first independent electronic trading system in Japan after winning the approval of Japan's Legal Affairs Bureau. JapanCross Securities Company, a 50-50 joint venture between Instinet and Salomon Smith Barney, will operate an electronic trading system, expected to begin later this year, that will anonymously match buy and sell orders periodically throughout the day.

The move is significant. That's because trading in Japan is dominated by the Tokyo Stock Exchange and a few other exchanges. It also marks Instinet's first foray into periodic crossing. Instinet has operated an after-hours crossing system in the U.S. for the past 15 years, but has ceded the more popular intraday matching business to rival ITG's POSIT system. Instinet and Salomon together invested 400 million yen, or about $3.3 million, in the new business. Instinet will contribute its technical expertise while Nikko Salomon Smith Barney, a joint venture between Salomon Smith Barney and Nikko Securities, will supply the orders.

Lehman

Lehman Brothers capped a two-year reorganization of its equity trading department with a handful of promotions. Former Nasdaq chieftain Matt Johnson now heads up all U.S. cash trading, while former listed leader John Peluso will run Equity Trading Relations for North America. Both are newly created positions. Johnson's job involves the day-to-day operations of both Nasdaq and listed trading while Peluso will be the trading department's number one point man with customers.

The promotions formalize Lehman's evolution away from market-specific trading toward industry sector-based trading. For the past two years, Nasdaq traders have worked side by side with listed traders in clusters devoted to such sectors as technology. The changes were made to respond to customer needs, said a spokesperson. Despite the changes, Lehman's Nasdaq and listed departments aren't vanishing. Nasdaq trader Robert Arancio will now head up Nasdaq trading, while block trader Michael O'Hare will be in charge of listed trading.

Plum Posts

Top jobs in the newly merged equity trading department of J.P. Morgan Chase & Co. have gone to ex-Chase H&Q staffers. Jim Tarantino, formerly head Nasdaq trader at Chase H&Q, will oversee two Nasdaq desks - the ex-Chase H&Q desk in San Francisco and the ex-J.P. Morgan Securities desk in New York. The firm is maintaining a trading desk in each of the cities instead of combining both into one larger desk. Tony Baumer, formerly top Nasdaq trader at Morgan, will head up the New York Nasdaq desk, but report to Tarantino in San Francisco.

On the listed side, Jim Brett will run the show out of New York. Brett came from a small Chase H&Q desk in New York that was folded into the new operation. Still undecided is a head for U.S. Cash Trading, the overseer of both Nasdaq and listed trading. Jolyne Caruso-Fitzgerald held the post at Morgan, but quit last month to join Pequot Capital Management, the country's largest hedge fund.