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Elaine Wah

Modern Markets, Modern Metrics - A Blog By IEX

In this blog by IEX's Elaine Wah, the newest public exchange looks to refute public claims that the metrics it uses are designed to inflate its own volume numbers and mislead people.

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March 1, 2002

Primex Presents NYSE Challenge The Kinks Aside, Nasdaq Has New Weapon

By Brian O'Connell and John A. Byrne

Also in this article

  • Primex Presents NYSE Challenge The Kinks Aside, Nasdaq Has New Weapon

Call it the 100-days rule.

In the world of stock trading, you can sometimes tell within 100 days if a new system is a hit with the pros.

Some 100 days have elapsed since Nasdaq helped to introduce the Primex Auction System. Since the launch, the operation has had technical challenges but overall performance has been good. That is a positive sign for its owners, a group that includes Goldman Sachs, Salomon Smith Barney, Merrill Lynch and Bernard L. Madoff Investment Securities.

Primex, a system that offers broker dealers an electronic alternative to the New York Stock Exchange auction could eventually attract substantial and profitable order flow, according to some pros. But it will take more than 100 days to find out.

The owners sound optimistic. "We've created an auction that is best deployed in a major market like Nasdaq, which didn't previously have that capability," said Glen Shipway, chief executive of Primex Trading, the company that developed Primex.

David Weisberger, a technology executive at Salomon Smith Barney, does not mince words.

"Primex is one of the first vehicles that allows market makers to compete with specialists electronically," said Weisberger, a managing director of equity market making systems and quantitative algorithms. "It could help narrow spreads for small orders because of the increased competition."

For a trading community obsessed with costs and best execution, Primex gives users the opportunity to obtain price and size improvement on each order. Primex permits broker dealers to anonymously expose Nasdaq and listed orders to a crowd of bidders. It is a system especially suitable for retail orders. It is a system that provides an acceptable regulatory environment for customers' internalized order flow, Primex officials say.

Primex has two distinct groups. One group includes market makers that expose their orders; another is the crowd of electronically linked participants jostling for prices at, and inside, the current NBBO, or national best bid and offer.

Nasdaq envisages a crowd that includes proprietary traders, institutions, and ECNs. As of press time, some 60 broker dealers registered as Primex participants.

The Primex crowd can predefine their responses using the Predefined Relative Indication (PRI) tool, responses which dwell privately in the system. As orders are exposed, PRIs can then immediately respond. Market makers entering customer orders can commit capital.

"If a firm has an order it can submit it within Primex and have it exposed to the trading crowd," said Gene Lopez, a senior vice president at Nasdaq. "If there's a better price within the trading crowd, it can get a better execution. If not, the order will get executed at the NBBO or through another Nasdaq system like SuperSOES."

Shipway says the brilliance of the system boils down to this: It provides a relatively simple way for Nasdaq participants to tap liquidity never previously available to the market.

Primex is a facility' of Nasdaq, a facility which some see as a threat to the NYSE. Despite the war cry, the NYSE still dominates listed trading, handling some 85 percent of trading in its own stocks.