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February 1, 2003

Archipelago in SuperMontage Future?

By Desmond MacRae

There are many ways for an exchange to skin a cat.

An exchange can go public and raise cash.

Or, like Archipelago Holdings, it can switch trading in all its OTC stocks over to its own hotshot stock exchange, Archipelago Exchange. That switchover was in motion early this year from Archipelago's ECN to an all-electronic entity, Pacific Exchange, which it owns.

"We'll save a ton of money previously spent on clearing services and we'll make money on market data," one Archipelago official privately told Traders Magazine.

There was much talk that Archipelago would pull out of Nasdaq's SuperMontage once it had OTC stock trading safely folded into the Pacific Exchange. However, Kevin O'Hara, Archipelago's general counsel, believes it won't happen exactly as some are predicting, even as Archipelago becomes a full-fledged exchange this spring.

"The issue of Arca [Archipelago] having access to SuperMontage is in ongoing negotiation," O'Hara said. The bigger issue is whether SuperMontage should have more direct linkage with Archipelago, which was an early source of major SuperMontage liquidity, exchange officials say. Archipelago does not plan to "post quotes" again on SuperMontage. However, it will continue to route orders to SuperMontage as necessary, especially to fulfill Archipelago's best execution obligations.

"Traders no longer want a single equities exchange to tell them it is the only place to be," O'Hara said. "Despite what some people may now think, I can tell you that from where we started with them [Nasdaq] just over a year ago, positions have changed."