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April 1, 2003

The BBX and SuperMontage

By Editorial Staff

Some of the key SuperMontage trading differences between the BBX and Nasdaq:

* Dealers must quote two-sided, continuous markets "reasonably related to the market." Under OTCBB, dealers are only required to quote one side-bid or ask. The new ruling may only be contentious when applied to less liquid stocks. One dealer says most OTCBB dealers already quote two-sided markets in most securities.

* Dealers have the option of accepting order delivery or automatic executions against their quotes. That is something only available to ECNs on Nasdaq. Nasdaq dealers must take auto-ex.

* Dealers who disable the automatic quote refresh feature have 30 minutes to replenish any depleted quotation. Nasdaq dealers only get a 30-second grace period.

* Quotes and orders may be entered out to four decimal places. This rule recognizes the average price of an OTCBB stock is only 10 cents and that many trade in fractions of a cent. On Nasdaq, quotes go out no more than two decimal places.

* BBX round lot sizes will not change. They will be based on the same tier table used in the OTCBB. (See table on page 64.) The most common quote size is 5,000 shares. That compares to a round lot of 100 shares in Nasdaq. ECNs dislike the minimum because their customers often want to quote in smaller sizes. Nasdaq argues high minimum quote sizes foster liquidity.

* No ECN access fees. That means liquidity takers may specify their orders be executed on either a price/time priority or price/size/time priority basis. On Nasdaq, dealers must contend with a third option which takes into account ECN access fees.

* No limit order handling rules. BBX dealers need not represent customer limit orders. However, BBX dealers must follow Manning rules that prevent them from trading ahead of customer orders.

* No bid-tick rule for short sales. BBX dealers can short stock on a downtick. They don't have to wait for an uptick. BBX dealers will have to report short interest though.

* BBX pricing will be calculated on a per-transaction rather than a per-share basis as is done in Nasdaq. Liquidity providers pay 50 cents per trade regardless of the value of the trade. Liquidity takers pay 0.05 percent of the value of the trade, but no less than 75 cents.

Source: Traders Magazine research