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December 1, 2001

At Deadline

By Editorial Staff


*The Island ECN, striking out as an exchange, is nearing completion of its Form-1 application with the Securities and Exchange Commission. And it marks the first time an ECN has filed a full-fledged application for exchange status under the SEC's Reg. ATS. Island officials are awaiting comments back from the agency on covenant issues as well as on their proposed rule book. Island is also still discussing with SEC officials what constitutes an exchange.

Island's application is the most direct one made by an ECN to date. The indirect route for stock exchange status was used by the Pacific Exchange. It recently gained approval for Archipelago as its trading arm. The SEC approval of that application transforms Archipelago, an ECN, into an exchange.


*VWAP executions at the Philadelphia Stock Exchange boomed in this year's third quarter. Over 100 million shares, or about 1.5 million per day, were traded at the volume-weighted average price in the Philly's electronic eVWAP facility. That's twice the volume recorded in the previous quarter and 20 times the amount of the year-ago quarter. The growth spurt highlights the buyside's increased acceptance of the controversial trading strategy.

A passive methodology, VWAP is eschewed by many institutional traders who believe it denigrates their skills.

Regardless, the numbers are good news for Philadelphia's Ashton Technology, the owner of eVWAP. After seven years as a public company, its revenues jumped from negligible to $1.2 million in the quarter. It also managed to trim the net loss of its ongoing businesses from $3.7 million to $3.5 million. Its balance sheet is still underwater, though, and its stock, at 12 cents per share, was recently delisted by Nasdaq.


*Several senior trading executives are leaving Credit Suisse First Boston. Martin Newson, head of the firm's European equities division, resigned last month "to pursue other opportunities," according to a company memo. Another top trader, Robert Padala, left the firm a few months ago for Prudential Securities. He previously headed up trading at Donaldson, Lufkin & Jenrette, which CSFB acquired last year for $13 billion. The DLJ acquisition has been a drag on CSFB's balance sheet. In light of sour market conditions, the firm's overall profit this year has dipped below $400 million, compared to realizing about $1 billion last year. A spokesman for CSFB declined to comment.


*With many traders complaining about subpenny trading, a Nasdaq Committee has the issue under consideration. The Nasdaq Institutional Advisory Trading Committee - ITECH -is due to weigh in on the controversial subject in the next few months. Said one committee member, who didn't want to be quoted by name, "I can go along with trading in subpennies, but I think quoting in subpennies is not a good idea."

Officials of the Big Board and the STA contend that subpenny trading would not be a good idea (see Washington Watch). Last summer the STA sent a letter opposing the plan, and New York Stock Exchange officials recently sent their own letter calling for the SEC to deep six the idea. Both groups argue that decimalization has wreaked havoc with the markets, with traders still trying to figure out the system. It is designed to give individual investors a better deal. If traders are also expected to adjust to executing in amounts smaller than pennies, then the markets will be hurt more, the two organizations complain.