Commentary

Jos Schmidt
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Reducing the Regulatory Burden on Public Companies, Yes Please But...

In this commentary, NEO's Jos Schmidt discusses regulatory requirements and needs in the Canadian equity markets.

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November 1, 2002

ECN Fights SuperMontage in Court

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Domestic Securities, which is owned by the ECN Attain, failed in a lawsuit to stop the operation of the SuperMontage, but it is still trying. Domestic Securities, in the lawsuit filed in the U.S. Court of Appeals, District of Columbia against the U.S. Securities and Exchange Commission, also charged that the NASD's Alternative Display Facility is not a viable option.

Rigging Market

"Every ECN will be hurt if the SuperMontage goes ahead as it is now," said Harvey Houtkin, chairman and chief executive officer of Domestic Securities. He claimed that regulators are ignoring the interests of non-market makers and are rigging the market in their favor. "They are prostituting the process," Houtkin charged. SEC officials declined comment.

"Domestic believes that the ADF is nothing more than a Potemkin Village, an elaborate facade," according to the litigation. The lawsuit also said, "that Domestic, the Commission and the investing public do not suffer from the gullibility of Catherine the Great. The ADF has the appearance but not the substance of a viable alternative," according to the compliant. The complaint also charged that SuperMontage's "decrementation" would eliminate the inside quotes of some ECNs.

"SuperMontage automatically removes from the quote screen an ECN's quote (by decrementing it to zero) whenever a market participant has been denied access by that ECN for refusal to pay ECN fees," the complaint added.

Although Nasdaq would not comment, sources within the organization dismissed the lawsuit. One said that, "this is the kind of lawsuit that is filed at the last minute when one has consistently lost in the rules-making process. They're trying to stop SuperMontage at the last moment when we have had countless reviews of this and no one can say that anyone and everyone didn't have his or her say."

Nevertheless, Houtkin vowed that the lawsuit will go forward and he expects that it will be heard on an emergency basis. "SuperMontage is just starting up now. There is still plenty of time to stop it," he added.

Attain is an electronic communications network that primarily serves active traders. It accounts for about two percent of total volume in Nasdaq stocks.