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September 30, 2002

Beware of the Listed Black Box?

By Gregory Bresiger

ECNs are likely to be shut out of the OTC market because of SuperMontage, but now is the time for alternative trading systems to aim for more listed business.

That's according to officials of several alternative trading firms, who say that some of them will be aiming to take business away from Big Board specialists.

"This is the next logical step for us," said Alexander Eskandar, a spokesman for Liquidnet, one of a group of firms using blackbox style systems.

"Most of our business is institutional so we are going to be able to do it," he added. It is logical, ECN officials say, because alternative trading systems now only have some five to ten percent of NYSE volume.

Therefore, adds Joshua Rose, CEO of Linx, "ECNs realize that the next battleground is going after listed stocks." [see Trading & Technology, page 68]. Not all ECNs will be able to take this step, Eskandar warns, noting that about two thirds of his firm's business is institutional. Those with a retail orientation will have difficulty making the transition because most Big Board trading is institutional.

"They will also have to come up with systems that provide discretion and that can handle huge trades. Many ECNs just won't be able to do that," Eskandar predicted.