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December 1, 2002

ECNs Rip Nasdaq on Capitol Hill

By Gregory Bresiger

A trio of ECN officials blasted Nasdaq in testimony on Capitol Hill, which was taken by House Energy and Commerce Subcommittee. The committee held a hearing on the progress of ECNs and whether they are helping the individual investor obtain better executions. All ECN officials told the committee that fragmentation isn't bad; that it promotes competition and benefits investors.

Kevin Foley, chief executive of Bloomberg Tradebook, also told the committee that Nasdaq and other "government-sponsored monopolies" do not promote innovation. But officials of the NYFIX and the American Stock Exchange also criticized ECNs, the largest of which, the Island and Instinet combo, didn't send a representative to the hearing.

Michael Ryan, general counsel of the American Stock Exchange, said Island is violating federal securities laws by refusing to display orders in the national consolidated quotation system as required by Regulation ATS.

Amex and Island officials didn't respond to requests for comment.

Besides the continuing battle between exchanges and ECNs, Capitol Hill sources said there's a turf battle going on between the subcommittee and the House Financial Services Committee for oversight responsibility of the market structure issue. Sources say this could erupt into a battle in the next session.