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August 31, 2002

Finding Unity Amid Controversy

By Gregory Bresiger

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  • Finding Unity Amid Controversy
  • Page 2

Jack Hughes, the incoming STA chairman, is devoting his term to finding unity among the rank and file of the trading community. It is an ambitious task. He discussed his plans with Traders Magazine's Gregory Bresiger.

Traders: Your idea of unity sounds interesting. But how exactly will you accomplish it? As the range of your membership expands, won't you, inevitably, have a clash of interests?

Hughes: I think there will be times when the executive committee and the board of STA may come out diametrically opposed on issues.

Traders: Isn't it inevitable that you're always going to have these differences among the various parts of your organization?

Hughes: Yes. But that's because we've had so many changes in our industry since the establishment of Nasdaq. There's almost a blur of that fine line between a Nasdaq trader and a specialist. They all are executing orders. And they all have a P&L in mind, yet it is best execution that must come before anything.

Traders: So, although you concede there are many times when your members will have differences, you believe you can frame big picture issues in a way that will prove that you, more times than not, will have common interests?

Hughes: Absolutely. I think even the people at the ECNs agree that their value added is their execution service. And that's where the value added of market makers is too. Whether it is market makers, or an agency order handler on a Nasdaq or listed trading desk, their principle purpose is to get good execution. The business model of the ECNs may have to change a little bit, similar to how [market makers'] models had to change when ECNs came into play.

Traders: It's a tough world out there. Lots of your members are hurting right now.

Hughes: No one is guaranteed a profit in this business. You've got to fit your business model in order to do that.

Traders: What do you say to those like Benn Steil who think that SuperMontage is a super ECN and that it also amounts to a cartel, a cartel that will be broken because of competition from the ECNs that will pass it by?

Hughes: Some of the ECNs have extremely powerful systems and may be able to compete. But I think they would be better served embracing it [SuperMontage] and showing how well they could do it.

Traders: You're saying SuperMontage is going to be another case in which change will actually be good?

Hughes: Yes, you know that Nasdaq traders, years ago, fought changes as they went along. But every one of those changes was beneficial to our industry and they were very profitable for the Nasdaq platform as well as market makers. And I think the ECNs will see that also. It [SuperMontage] will be profitable for them. SuperMontage is going to give [market players] more of a depth on a security, especially on large orders. It will give the order handler a greater amount of information. It will also give the order handler a greater ability to make proper decisions for his clients.