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Spoofing, Surveillance and Supervision

Jay Biondo, Product Manager - Surveillance at Trading Technologies, co-authored an article along with James Lundy and Nicholas Wendland, both of Drinker Biddle & Reath LLP, reviewing the CFTC's regulations and expanding efforts, 21st century surveillance and supervision, as well as strategic recommendations.

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June 30, 2003

Nasdaq Prepares for a Better Market Opening

By Peter Chapman

Nasdaq could soon start the day with a single price opening. Mike Edleson, Nasdaq's chief economist, told attendees at a recent symposium on institutional trading at Baruch College in New York City, that Nasdaq planned to roll out a single price opening "as soon as possible."

The advent of a single price opening would be a dramatic change from the current opening process on Nasdaq. Today, the market opens with the posting of multiple bids and offers in each of the thousands of Nasdaq securities.

The first trade each day in a security sets the opening price. But this price may not reflect the true market for a security. That's because a large chunk of the day's trading is typically conducted at the opening. In recent years, the discrepancy has led to criticism of the Nasdaq opening by both the Securities and Exchange Commission and traders on the buyside.

A single price opening would require market makers to dump all or some of their orders into some form of call auction, say experts. A price would then be derived from the many trades expected to result. Some traders expect the change by year-end. However, one Nasdaq official privately says the change is unlikely until next year. Nasdaq is still in the "early stages" of developing the methodology of a single price opening, the official said.

Traders see merit in a single price opening, but have some reservations. "If you can design the system so it's not susceptible to gamesmanship, then there certainly is no harm in it," said Peter Gebhardt, a senior market maker with Thomas Weisel.