Richard Repetto
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Why Do Exchanges Own Multiple Licenses? It's Not Hard To See, Look at the SEC

In this recent research note, Sandler O'Neill + Partners, L.P. Principal Richard Repetto examines why the public exchange operators hold multiple licenses and that rationale behind this phenomenon.

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August 31, 2003

Nasdaq's New Weapon To Bring Back Dealers

By Peter Chapman

Nasdaq's plan to offer post-trade anonymity within SuperMontage could entice market makers back from ECNs, traders say.

Pending approval from the Securities and Exchange Commission, Nasdaq will no longer reveal the identities of dealers posting quotations in the SIZE acronym. Currently, market makers using SIZE for pre-trade anonymity must give up their true IDs following an execution.

Because the anonymity of SIZE is short-lived, market makers trade on ECNs when they want to hide. SIZE is rarely used. That could change if Nasdaq gets the green light from the SEC.

"A lot of people would start to use it in order to circumvent ECN charges," said Joe Ranieri, head trader at Adams, Harness & Hill. "If [post-trade anonymity] were the case, you would see 100 percent participation by Nasdaq market makers."

Nasdaq's fee is small and paid by dealers anyway. So, cost-conscious members would opt to trade on SuperMontage rather than an ECN if it offered anonymity, Ranieri believes. "These days it's all about cost," he said. "If Nasdaq can offer ECN-like functionality with anonymity at a reduced cost, then that's it. They'll take over."

Not all market makers view post-trade anonymity positively. Bear Stearns' head Nasdaq trader, Aldo Parcesepe, says it's a "horrible" idea. Nasdaq's moves to emulate the ECNs, Parcesepe argues, will lead it into competition with its members. Bear does not use SIZE, Parcesepe says. The firm doesn't want to be anonymous; it wants the market to know when it has merchandise to trade.