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August 31, 2001

At Deadline

By Editorial Staff

Market Depth

Market depth has loosened in the SuperSOES era, engendering mixed feelings among market makers. Keith Brickman, head of Nasdaq trading at Morgan Stanley, says attributing changes in depth to SuperSOES is folly as the system is too new and volume is depressed. But, he notes, "depth of market has clearly widened. You're not seeing penny increments all the way up and down."

Market depth refers to the gaps between the bids or between the offers. Under SelectNet, many of those quotes were 100-share throwaways used to sniff out supply and demand. Market makers could hold their quotes for 17 seconds, often tying up others. In the SuperSOES auto-ex world, quotes simply vanish. Consequently, those remaining are more likely to indicate real' trades. "Liquidity is more identifiable," said Len Hefter, head of Nasdaq trading at Jefferies, Dallas who applauds the change. Other traders miss the 17 seconds. "I could sit there and listen to the order flow," said one trader. "I could sit there and not be forced to move."

Bearish Wick

Nasdaq, blindsided by a bearish market, will probably have to live through more pain. Hardwick Simmons, chief executive of Nasdaq, doesn't expect a recovery soon. "We expect the current soft market conditions to continue for at least the balance of the year," according to Simmons, who was commenting on the recent grim numbers for his organization.

Nasdaq, which recently jettisoned 10 percent of its workforce, reported a big drop in earnings for the quarter and the first half of the year compared to the first quarter and first half of last year. What went wrong? "From a financial point-of-view, Nadaq directly felt the financial impact of the softening economy, demonstrated by a weaker IPO market and a recent decline in average daily trading activity," Simmons said. "Anticipating these market conditions, we have moved to aggressively reduce expenses from budgeted levels to position ourselves better for the second half of the year."

The Winner

Third market dealer Bernard L. Madoff Investment Securities swept the first monthly small-order best execution beauty contest for listed securities. The SEC's new Rule 11Ac1-5 requires market centers such as Madoff to make public every month a standard set of statistics that measure the quality of the executions they give brokerage customers.

In two key measures, the effective spread and speed of execution, Madoff bested its six biggest rivals for orders under 5,000 shares in S&P 100 stocks. In the 5,000-share to 9,999-share category, though, Madoff was beaten by Knight Trading Group. Conspicuously placing last in all size groups was the New York Stock Exchange. In its defense, the Big Board's Website notes that the data excludes block trades, or those of 10,000 shares or more, categories in which it is dominant. Analysts expect the numbers to change brokers' order-routing habits. "This is data that compliance officials can't ignore," said Alan Shapiro, president of the Transaction Auditing Group, an independent organization publishing firms' data.

Fleet Trading

Add Fleet Trading, a division of Fleet Securities, to the growing list of firms undergoing shake-ups. Two vets have exited the firm - William Black, previously chief executive, and Neil Feldman, formerly president. A spokesman for Fleet said both Black and Feldman left voluntarily, but added that, "we have had to take a more pro-active approach to our business and to do some re-engineering to ensure that we stay competitive in this kind of market."

A management committee chaired by Leslie Quick III, chief executive of Fleet Securities, will oversee Fleet Trading. The committee also includes Fleet Trading's Kevin Butler, managing director, institutional trading; Patrick Clarke, managing director of trading; Eric Vervoordt, chief operating officer, and Fleet Securities' chief operating officer, John Bahnken.