Commentary

Jared Dillian
Traders Magazine Online News

Was it Worth It?

In this piece from 10th Man, author Jared Dillian discusses how the ETF revolution is less about ETFs and more about indexing; about how people have come to view stocks less as stocks and more as blobs of stocks.

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March 1, 2001

Super Monopoly, SuperMontage?

By Editorial Staff

Also in this article

  • Super Monopoly, SuperMontage?

Like it or not, within 24 months, the Nasdaq Stock Market could look and act a whole lot different from now. Ready or not, the Nasdaq Stock Market could experience Future Shock in the next two years.

The SuperMontage may be even more momentous than the privatization of Nasdaq. Here is what some industry pros told Traders Magazine about the new trading system - a system some have called a super ECN run by Nasdaq.

Lon Gorman, Vice Chairman, Schwab Capital Markets

This is a huge step in the evolution of trading platforms, specifically for Nasdaq.

Aggregating liquidity in a market perceived as fragmented is a great step. There are probably other steps that are necessary. This should go a long way in helping the institutional investors who are yearning for a more centralized location and want to react to liquidity. Nasdaq now recognizes the vital role that providing liquidity plays in the success of their market.

Robert Wood, Professor of Finance, University of Memphis, Memphis, Tenn.

Unfortunately, there has to be a better way to transmit the volume [on Nasdaq] that is out there. The key issue is bandwidth. That's what is killing everybody. We are set up for a market crash.

Nobody is taking a system wide view. Nasdaq has been dropping the ball left and right in terms of their programming expertise and systems maintenance. Is that going to be transformed overnight? I don't think so.

Andrew Madoff

Director of Nasdaq trading, Bernard L. Madoff Investment Securities

There is the possibility that more order flow will go to the SuperMontage. But that's an argument [against the SuperMontage] that you could level against any other system, such as an ECN. Some dealers have become very big. Does that hurt other dealers? Well, that's what competition is all about.

The SuperMontage establishes a minimal level of functionality in getting orders executed that dealers and ECNs will have to provide. The SuperMontage enables me to provide a higher level of services and it makes it less costly to provide excess liquidity to my customers.

Junius Peake, Professor of Finance, University of Northern Colorado, Greeley, Co.

There is a little paragraph [in the SuperMontage approving order] that says if you don't like any of this stuff you can still trade by telephone. The whole system is voluntary. Anybody who wants to avoid things can still get on the phone and call a dealer. All the institutional trading is going to be done that way. The only people left on the SuperMontage will be the small orders.

Where is the cost benefit analysis? Normally, government releases are required to put in cost benefits.

Jennifer Conrad, Professor of finance, University of North Carolina, Chapel Hill, NC.

Associate editor, Journal of Finance

The most interesting part is that they are going to be flexible about what they show. [The SEC] is going to continue to review [the SuperMontage] to see what can be added to the screen. Do we need to go to five price [levels instead of three] or change the screen layout? [The SEC] left itself some degree of freedom that may come in handy.