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John Turney
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Foreign Exchange Infrastructure: Yesterday, Today and Tomorrow

In this exclusive to Traders Magazine, John Turney, Global Head of Outsourced FX at Northern Trust, discusses the evolution of the fx infrastructure and what is to come.

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May 31, 2002

Another Nasdaq Step Forward at Cincinnati?

By Peter Chapman

A new order delivery system, designed to meet the demands for Nasdaq trading among its ECN and ATS members, has been proposed by the Cincinnati Stock Exchange.

The new mechanism would be similar to Nasdaq's SelectNet, pending approval by the Securities and Exchange Commission. It would complement the CSE's existing automatic execution system and allow members to reject trades if they chose.

The new system would become part of the CSE's larger "OTC-UTP" trading platform, which itself is awaiting a nod from the SEC.

Multiple Liability

In its filing with the SEC, the CSE indicated that its ECN and ATS members requested the system. "Members have expressed concern that CSE's automatic execution system exposes them to significant multiple execution liability," the filing stated.

If an ECN can reject trades it can eliminate the risk of the same order executing twice-once within its own network and once in the Cincinnati's. An ECN can reject trades in Nasdaq through its use of SelectNet.

The Island ECN, the largest ATS member at the Cincinnati, earlier this year began reporting most of its trades to the CSE rather than to Nasdaq. The CSE proposal suggests Island would like to execute trades there as well.

Cincinnati now boasts that it is the nation's third largest stock exchange because of Island's volume. It reported average daily volume of 170 million Nasdaq and listed shares in March. If that is true, the ranking represents a remarkable turnaround for an exchange that had been fast dwindling into irrelevance. In the year to March, the CSE saw its listed volume cut in half. It dropped from 340 million shares in March 2001 to about 170 million in March 2002, according to Consolidated Tape data.