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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July 31, 2001

At Deadline

By Editorial Staff

ECN Review

*Nasdaq's technological problems have spooked some regulators. And now ECN officials are worried that regulators are overreacting. The SEC is thinking about requiring ECNs to live up to the same technology standards as stock exchanges. The so-called Automation Review Policy (ARP) is a set of guidelines. It requires that an exchange's technology is reliable. It includes a twice-yearly audit. The Securities and Exchange Commission's Division of Market Regulation is contemplating extending the standard to ECNs, according to a published report. ECN officials say the ARP is reasonable, but should not be required of them.

"I think it is ironic they want to review our procedures considering we are the only major marketplace that hasn't failed recently," according to Josh Levine, v.p. of core systems development at Island ECN. SEC officials are slated to discuss ARP with ECN officials later this month.

Nasdaq Agent

*Wall Street's giants aren't the only ones shifting their Nasdaq trading to an agency basis. [see Cover Story]. Boston's Fechtor Detwiler, a small research house, is transferring much of its Nasdaq trading to its specialist operation on the floor of the Boston Stock Exchange. The firm, which bought BSE specialist K&S in January, has cut the number of Nasdaq stocks it trades from 100 to 60 and plans to chop more. K&S, on the other hand, has been allocated about 40 stocks under the BSE's new Nasdaq-trading initiative. Trading should start in September, according to a BSE spokesperson, although SEC approval is still pending.

The move is the result of a margin squeeze at the desk, a desire to expand the K&S business and a belief that institutional customers are going to want an "honest-to-goodness agency execution," according to Doug Jones, Fechtor, Detwiler's head of Nasdaq trading. BSE specialists, Moors & Cabot (which also has an upstairs Nasdaq desk), and Melvin Securities will also trade Nasdaq stocks in the pilot.

Ameritrade

*Ameritrade has bought the online brokerage unit of Deutsche Bank's National Discount Brokers (NDB). The sale, valued at about $154 million, occurs amid rumors that the parent firm, NDB Group, will be downsized, with traders among those losing jobs.

NDB's market making operations, which are not part of the sale, handles transactions for some 4,000 Nasdaq securities and accounts for the bulk of the NBD Group's revenues.

Online brokerages are facing increasing pressure as the stock market continues to dive. NDB online operations will likely be moved to Omaha, Neb., the headquarters of Ameritrade, or to Ameritrade's office in Fort Worth, Texas, the spokesman said.

NDB appears to have been a victim of a trend of small firms unable to survive in a tougher market. NDB online only executed some 9,000 trades a day. Ameritrade completes about 110,000 trades daily.

Soft Dollars

*Sungard Data, hoping to expand its soft-dollar business, has recruited three former executives of Bridge Trading, which is being sold to Reuters. SunGard's Bridge hires include Mark Minister, previously president and chief executive, who is heading up SunGard's Transaction Network; and Jay Indovino, formerly a managing director, who is group chief executive of SunGard's International Brokerage and SunGard Global Executions. Jack Hornberger, formerly managing director and senior vice president of Bridge Transaction Services, has also joined SunGard.

"SunGard has nearly 10,000 clients in all areas of the financial services industry. Many of those clients want to pay for their SunGard solutions with soft dollars," said Kelly O'Brien, a SunGard spokeswoman. SunGard is increasing its presence in a field that is dominated by Lynch Jones & Ryan. It is owned by Reuters Instinet, and Bridge Trading, which will soon be owned by Reuters as well.