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December 1, 2003

At Deadline

By Editorial Staff

Europe

*Finding a way to eliminate the inconsistent use of technology in European markets will be the goal of a task force established by the Securities Market Practice Group. The task force is searching for a protocol that market participants can use to eliminate market barriers. That's according to a Citigroup Transaction Services official. Catherine Dias, who is Citi's securities country manager for Portugal, says the task force will have ten particpants. These will include securities depositories, broker dealers, fund managers and custodians.

SWIFT will act as a facilitator of the task force.

Multiple IDs

*Nasdaq has developed new surveillance procedures for its nascent program allowing members to trade under more than one acronym. It is implementing a review process to ensure firms are obeying the rules governing multiple IDs. The NASD is helping with the process. The NASD will also use new automated surveillance technology to analyze trading at both the firm and individual market participant, or MPID, level. The stepped up surveillance, sources say, is partly because of the Securities and Exchange Commission. It is worried about market makers abusing a second MPID.

The SEC has not yet approved the proposal which would allow Nasdaq desks to represent quotes as both principal and agent. A pilot program is off to a slow start. Only two firms, Bear Stearns and Bernard L. Madoff Investment Securities, have signed up. Traders say they are awaiting regulatory approval to "trade ahead" of their agency quote with their principal quote. Trading ahead of customer, or agency, orders is forbidden under so-called Manning rules.

Philly

*The Philadelphia Stock Exchange, which owes the state of Pennsylvania for five years of back taxes, could be in a battle for survival, according to Keefe, Bruyette & Woods, which compiled a report questioning the exchange's survival prospects. PHLX owes the state $1.12 million. The bill is the accumulation of five years of unpaid corporate income taxes along with interest and penalty charges. The last few years have been a difficult time for PHLX. That's because the exchange, one of the nation's oldest, ran in the red in three of the last five years, the report noted. A spokesman for the exchange said that it is solvent.

SuperMontage

*Instinet's decision to post quotes on SuperMontage is unlikely to provide Nasdaq with a big surge in market share, according to some Nasdaq insiders. They expect the deal to add no more than two percentage points to the

17 percent of executed trades Nasdaq now commands. That's because most of Instinet's limit orders will either execute within its own system, or will not post on Nasdaq's SuperMontage.

Currently about 80 percent of all of Instinet's trades occur subscriber-to-subscriber. In addition, Instinet orders that would lock or cross the market will post on the National Stock Exchange, according to Instinet's Alex Goor. The exchange was known as the Cincinnati Stock Exchange until recently. That amounts to about 15 percent or 20 percent of all of Instinet's quotes in the most liquid names, according to one trader. Still, a two percent bump in market share is not insignificant when the highest share is only about 21 percent. Some firms calibrate their order routing to favor the market center with the largest market share in a given security.