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September 30, 2002

At Deadline

By Editorial Staff

Specialists

*As NYSE specialists become a vanishing breed, they will increasingly become a better takeover target in the next year. That was the prediction of Charlotte Chamberlain, managing director of equity research at Jefferies & Company. With the number of specialists having declined from 55 to seven over the last decade or so, the remaining ones are highly desirable, she said at a recent Investment Company Institute conference (ICI).

"The value of these specialists represents the best business that I've ever seen, bar none," Chamberlain said. She said that "80 percent to 85 percent" of the issues they trade in are monopoly businesses. She added that these specialist firms are "a fabulous cash business" that will be sought after by the large investment firms.

Assets

*Competition in the transition management world just got stiffer. Northern Trust has bought Deutsche Bank's passive asset management business. That doubles its domestic indexed equity assets. More assets mean more stocks for Northern's seven-person transition management division to cross against. It will allow it to compete more aggressively against top indexers for plan sponsors' transition jobs.

"There's no question the Deutsche Bank deal will significantly increase our internal liquidity," said Jeff Blanchard, director of Northern's transition services group. "Therefore, you would expect the transaction costs around the trading should go down quite a bit. Which means our product will be more competitive, particularly against BGI and State Street." The deal leaves Northern Trust with at least $100 billion in domestic indexed equity assets, behind BGI with about $300 billion and State Street with $200 billion. Vanguard Group, which does not offer transition management services, is a close fourth with about $80 billion in passive equity assets.

Soft Dollars

nInstinet is feeling the heat in the U.K. over soft dollars. Last month, Instinet's acting executive chief in Europe, Leslie Bray, called for the Financial Services Authority to exercise caution in its current investigation of soft commissions. The agency broker is worried the British regulator will propose an outright ban on the practice of fund managers using their clients' commission dollars to acquire certain services.

Brady wants the FSA only to ask for more money manager disclosure and tougher rules governing eligible services. The FSA targeted soft commissions for review last year at the behest of the British Treasury. Her Majesty's government was concerned that fund managers, rather than obtain best execution, might be steering trades to certain brokers just to finance purchases of goods and services. Instinet's plea came as two more money managers - Fidelity International and Newton Investment Management - joined a handful of buyside shops that have renounced soft payments.

SuperMontage

*Electronic communication networks are going to be badly hurt by Nasdaq's new trading platform, SuperMontage. Smaller ECNs are going to be pushed out of business because of higher fees imposed by Nasdaq. That was the opinion of John Wheeler, manager of equity trading for American Century Investment Management, speaking at the recent ICI conference. "Fees are being added and they will have to be paid by us," Wheeler said. He noted that American Century often executes through ECNs. But Dean Furbush, executive vice president of Nasdaq Transaction Services, said SuperMontage is "not an anti-ECN vehicle." He added that some SuperMontage fees - such as the one cent quote update fee - are designed, "to eliminate locked and crossed markets."