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March 1, 2002

More Nasdaq Slash and Burn

By Gregory Bresiger

ECN officials are expecting Nasdaq officials to file for another round of fee changes that they see as designed to undercut them.

As Traders Magazine was going to press, ECN officials were vowing that, once filed with the Securities and Exchange Commission, they will fight them. They charge that they will be designed to hurt those who are not going to use the SuperMontage, or will only use it part of the time.

"We'll see more controversy and more debates between Nasdaq and the ECNs," vowed William O'Brien, general counsel for the BRUT ECN.

Many of these fees were already approved recently. The latest round is expected to assess higher transaction and quote-update fees against those who are not defined as full contribution members, those who will use the ADF that is in the process of being set up by the NASD.

The new fees, ECN officials charge, will reduce the liquidity provider rebates available to Nasdaq users.

Such a pricing structure used by Nasdaq, BRUT claimed in a filing with the SEC, "would consciously antagonize its customers by making its products less attractive to them, with no prospect of compensation other than the erection or preservation of barriers against competition by equally efficient firms, [and] is purely predatory, violating Exchange Act bans on anti-competitive activity by SROs and registered exchanges."

This letter, and others that are expected to be filed, are the latest in a battle between the ECNs and Nasdaq over how SuperMontage should be designed and what rules should govern its use. A Nasdaq official last month [Washington Watch, Feb.] emphasized that Nasdaq has been able to obtain these fee changes and would continue to win approvals.

In a release, Nasdaq officials said they are introducing rule changes to impose differentiation in pricing. Fees will become dependent on the extent of a participant's Nasdaq reporting. For instance, some fees will be reduced based on how much one uses the system.

"Market participants," said Nasdaq in the release, that use Nasdaq, "as their market of choice for trade reporting will retain the low transaction fees and high market data revenue sharing that they currently enjoy, while market participants that cherry-pick among Nasdaq's market services will be charged somewhat higher fees."

Abolish Access Fees

In an interview with Traders Magazine, a Nasdaq official insisted that the ultimate goal is to abolish access fees. "Because of SuperSOES and changes in Nasdaq's prices and competitive posture, access fees are being reduced," said Dean Furbush, executive vice president, Nasdaq Transaction Services. "Nasdaq believes this is the right way to go. Access fees should continue to be cut until they reach zero."

Furbush said the process of cutting fees was spurred, "by Nasdaq's successful introduction of SuperSOES and our own competitive price changes announced last October. We continue to set the agenda."