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February 1, 2003

ECN Ready to Pick Up Bulletin Board Stocks

By John A. Byrne

A brawl is erupting over Bulletin Board trading.

Nasdaq, which is awaiting regulatory approval to turn the OTC Bulletin Board into a market with strict listing standards, is squaring off against Archipelago.

A 12-year headstart running the OTC Bulletin Board means Nasdaq handles most bulletin board transactions for dealers. That volume is hovering around 500,000 trades monthly. In the other corner, Archipelago - which has cut into Nasdaq National and SmallCap volume - says it could siphon order flow off the OTC Bulletin Board. Archipelago has its own bulletin board trading platform, purchased from the ATS GlobeNet. That was recently activated through its affiliated Archipelago ECN but it has minimal volume.

Nasdaq, however, does not expect to launch its new electronic bulletin board system, called the BBX, or Bulletin Board Exchange, until November. That could give Archipelago an advantage. It claims its interactive, real-time display of the order book and anonymity, is better than the current OTC Bulletin Board system of telephone-based transactions.

Archipelago also believes that if the OTC Bulletin Board becomes a market with a strict listing process for companies - a bureaucratic process moving in lockstep with Nasdaq's exchange registration - it could play into the ECN's hands. Nasdaq says it plans to dump some 50 percent of the current OTC Bulletin Board companies that do not qualify for the new listing rules. "Some bulletin board companies might find the [BBX] standards onerous and expensive and we might be able to pick up trading in these stocks," said Keith Lite, director of new business development for Archipelago.