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May 31, 2002

Nasdaq's SuperMontage Man

By Editorial Staff

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  • Nasdaq's SuperMontage Man

SuperMontage, scheduled to be activated this summer, has finally arrived.

The testing, using simulated trading conditions, is underway. Some ECNs, including the largest, Island, are signed on as members. Many market makers are singing its praises. Nasdaq executive Dean Furbush is pleased.

The head of transaction services at Nasdaq, Furbush helped win SEC approval for SuperMontage in January 2001.

That came after Furbush, 43, managed to hammer out an agreement with the ECNs hostile to a system they saw as designed to squash them.

Furbush was promoted to executive vice president - one of 15 top executives at Nasdaq - just after approval of SuperMontage.

In addition to SuperMontage, Furbush has responsibilities for the InterMarket, SuperSOES, Primex, and Nasdaq Tools.

He joined Nasdaq as a consulting economist in 1995. Furbush authored a study rebutting the conclusions of William Christie and Paul Schultz that the inter-dealer market was rigged.

The two academics had postulated that market makers colluded in keeping spreads wide. Nasdaq hired Furbush as its chief economist that year.

Traders Magazine Technology Editor, Peter Chapman, caught up with Furbush to find out more about the progress of SuperMontage.

Traders: Would you say the biggest change in migrating from SuperSOES to SuperMontage is the ability to view and access multiple levels of quotations?

Furbush: Yes. That's a pretty good summation. Everything we can do at the inside, SuperMontage will be able to do at multiple price levels.

Traders: Some traders believe SuperMontage will de-fragment what they consider a highly fragmented market, specifically by ECNs. How do you respond?

Furbush: It is the case today that ECNs are accessed through SelectNet and through direct connections. And market makers are accessed through SuperSOES. So we have these two systems. One is for ECNs and one is for market makers. That two-system approach will be unified under SuperMontage.

It brings the systems together in some sense. At least, more than it is now.

Traders: The montage will show five levels of quotes. Will you be able to view and trade against quotes below those five levels?

Furbush: Yes, you will.

Traders: Will more transactions accrue to SuperMontage than to SuperSOES?

Furbush: Yes, we have engineered in the liquidity access. So, imagine you wanted to sell 10,000 shares and were willing to go down three price levels.

Now you can do that with one button push. That efficiency...that ease of access...will make people use it more.

Traders: Many of those liquidity levels are already on ECNs. Do you expect to see some of those orders transfer over to SuperMontage?

Furbush: We sure hope so. We think it makes sense for the ECNs' customers. An ECN that is thinking about its customers will ask whether those customers are best served in SuperMontage or elsewhere. It will absolutely be the case that the orders continue to reside on the ECNs' books. But they can reside in SuperMontage also. We hope that that is the choice they keep making.

Traders: Couldn't the growing trend towards internalization have a negative impact on SuperMontage's liquidity?

Furbush: SuperMontage is compatible with internalization. In fact, traders can cross their own orders on SuperMontage for free. Nasdaq will automatically seek to cross a market participant's own orders on SuperMontage before executing against quotes and orders of other participants.