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April 30, 2002

Nasdaq Up, NYSE Down In Listed Market League

By Peter Chapman

The Nasdaq InterMarket hit a high- water mark in March: the dealer market for listed shares traded a record 11.3 percent of all shares - up 40 percent since last June.

Nasdaq's gain is the New York Stock Exchange's loss, traders say. While the InterMarket has seen its market share soar from eight percent 10 months ago, the Big Board recorded a four percent drop to 81 percent in the same period.

Behind the reversal of fortune, traders contend, was the June 2001 implementation of a new SEC rule requiring market centers to report certain execution quality statistics. The ruling has forced order-sending firms to reevaluate their routing arrangements. Since then third market dealers such as Bernard L. Madoff Investment Securities have routinely published numbers superior to those of the primary markets. That generated new business. "The new rules have demonstrated that third market players have done a better job than the primary markets," said Mark Madoff, head of listed trading at Madoff. "For the first time, you are able to quantifiably define best execution. Because of that, our volume has increased."

Madoff adds that the impact of the SEC rule has been most noticeable in the flow of small orders, or those below 1,000 shares. Such retail-sized trades are the bread and butter of the InterMarket, which competes for the flow with the primary markets and regional exchanges. A Big Board spokesperson points out that its percentage of share volume has historically fluctuated from the low to the mid-eighties. And, he adds, much of the recent decline is concentrated in high-volume, low-priced names.