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February 1, 2003

At Deadline

By Editorial Staff

Liquidity

*The Investment Company Institute believes the Big Board's proposed Liquidity Quote rule is unacceptable. Despite commending the NYSE's goal of using the rule to show greater market depth because of decimal trading, ICI officials still believe the proposal should be revised. In a letter to the Securities and Exchange Commission, the ICI's general counsel Craig Tyle writes that..."the Institute believes the proposal falls far short of establishing a system to facilitate efficient trading by mutual funds and other institutional investors on the Exchange."

Tyle adds that, "This is because investors willing to interact with trading interest reflected by the liquidity quote would remain subject to current NYSE procedures governing the execution of X-Press orders, which will significantly diminish the potential benefits of the liquidity quote proposal." Besides the ICI, Bloomberg and others have also raised some questions about the NYSE proposal. [See Washington Watch.]

Fees

*Nasdaq eliminated its quote update fee. This came as quoting in Nasdaq stocks surged at its competitors. The one-cent fee was introduced 12 months ago to discourage excessive quoting, preserve system capacity and to raise revenue. Nasdaq says the decision to rescind the fee was made for two reasons. First, the market has doubled its quote update processing capacity in the past year. Second, quote traffic has declined as some ECNs refuse to participate in SuperMontage. Indeed, quoting in Nasdaq stocks on U.S. stock exchanges covered by the Unlisted Trading Privileges (UTP) plan, jumped significantly in December. Nasdaq reported messages per second (mps) jumped nearly 60 percent from 965 mps to 1,532 mps on its UTP feed during peak times in December.

Regs

*Nasdaq, which is seeing exchanges taking a greater share in trading of its stocks, wants these competitors to pay a larger proportion of market surveillance costs. In a letter to the Securities and Exchange Commission, Nasdaq President Richard Ketchum said his organization last year spent $80 million on regulatory costs.

"This crushing regulatory cost burden - a material portion of which is used to subsidize the regulation of trading that does not occur on Nasdaq - has significantly hindered Nasdaq's ability to compete with the growing number of alternative trading venues," Ketchum wrote. "We are growing increasingly concerned that the current allocation of regulatory responsibilities and costs poses a material threat to Nasdaq's long-term commercial viability." Nasdaq has been profitable so far because of cost-cutting measures. However, Nasdaq, in buying its freedom from its former parent, the National Association of Securities Dealers, has incurred big debts that will come due in the next three or four years.

Pinks

*Nasdaq's loss will be the Pink Sheets gain. At least that's the way Cromwell Coulson, chief executive for the Pink Sheets, is drawing up the plan. Coulson expects that Nasdaq's design to recreate its OTC Bulletin Board (OTCBB) into the Bulletin Board Exchange, or BBX, will result in more rigorous listing standards. Many companies will be pushed out of the OTCBB, Coulson expects, and they will be interested in moving to the Pink Sheets.

"We're building a lot of new features to appeal to those users," Coulson said. Pink Sheets is going to charge fees to listing companies, asking them to voluntarily sponsor their listings while letting market makers quote in those stocks for nothing. [See Industry Watch.]