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February 1, 2002

SuperMontage ECN Boycott?

By Gregory Bresiger

Nasdaq's prized SuperMontage, supposed to open sometime this year, may already have run into significant opposition.

Several ECN officials say their firms are going to opt out of the SuperMontage and use the ADF alternative display facility (ADF) mandated by the Securities and Exchange Commission.

These ECN officials privately tell Traders Magazine that the SuperMontage would constitute a de facto monopoly. They are also angry that Nasdaq has imposed its own form of access fees in recent months.

Nasdaq officials, who are working to amend the exchange registration application, reply that those access fees were ordered by the SEC. And Nasdaq denies it will operate as a monopoly.

"We are definitely not going to be a monopoly. We are going to compete against many others for order flow," a Nasdaq spokesman said.

Nasdaq still provides a SIP, or securities industry processor, for participants, "but only until someone takes over this function," which is expected later, he added. Nasdaq must cede its exclusive SIP control as part of its stock exchange registration.

Nevertheless, the SuperMontage, which is due to begin its pilot in July and become fully operational in September, has critics among ECNs.

"I think you're going to see a number of ECNs not using the SuperMontage," said Jamie Selway, the chief economist for Archipelago, an ECN which is joining forces as a stock exchange with the Pacific Exchange.

If ECNs do go ahead with their threatened action, it could be a critical blow to the much heralded SuperMontage. ECNs today account for about 40 percent to 50 percent of Nasdaq's volume.

However, a Nasdaq official dismissed the reports of expected SuperMontage problems.

"A lot depends on order flow and how ECNs will route to the SuperMontage," according to Bruce Turner, a Nasdaq executive vice president in charge of transaction services.

Turner says he has heard that officials of one ECN are not going to use the SuperMontage, but "most ECNs seem very interested and want to use it."