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January 1, 2003

NASD Trying to Outflank Big Board? Another Alternative Market for Listed Stock Trades

By Gregory Bresiger

The Alternative Display Facility (ADF), which is seeking to trade NYSE and other listed securities, may be about to steal a march on Nasdaq's own market for listed stocks.

"We're continuing with our application and hope it will be approved by the SEC," said a spokesman for the NASD.

ADF was originally set up as a plan B option for ECNs and others that didn't want to use SuperMontage for Nasdaq orders. It could now be used as another way of tapping into the listed market, bypassing the Intermarket Trading System.

The latter is much criticized by many participants for hindering speedy executions, mainly because of a trade-through rule imposed by the ITS. That rule prevents ITS members from trading a stock at a price that's inferior to what's available on another market.

Under the NASD's most recent plans, which were rejected by the ITS operating committee, ADF participants would have a choice of trading inside or outside the ITS with access to ITS members. The SEC is currently reviewing the NASD's application.

"Without doubt, this would be another blow to Nasdaq and its SuperMontage platform. This would be very dangerous if the SEC ever gave the approval to it," said an official of a huge electronic trading firm, who would not be quoted for the record. Nasdaq officials dismissed the potential threat from the ADF.

"We have lost no participants because of this. No one wants to exit the largest pool of off board liquidity, which is what the Nasdaq Intermarket is," said a Nasdaq spokesman, referring to Nasdaq's platform for trading listed stocks.

An SEC spokesman said the application is under review. At the same time, Nasdaq also has aired its own possible plans to offer listed trading on SuperMontage.