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January 1, 2004

Nasdaq and ArcaEx Fight Over Halt

By Gregory Bresiger

Nasdaq, in another swipe at a competitor, says the lack of coordination among markets recently harmed investors. Nasdaq halted trading in Corinthian Colleges (COCO) on a recent Friday.

ArcaEx "didn't honor" the trading halt, Nasdaq charged in a letter to the Securities and Exchange Commission. But Dale Carlson, a spokesman for ArcaEx, said that Nasdaq didn't have the regulatory authority to halt trading. "The cancellation was unjustified, inappropriate and badly communicated," Carlson told Traders Magazine.

Nasdaq officials said that ArcaEx resumed trading about 30 minutes before the other exchanges. They suggested that it violated long established rules.

"These problems are particularly surprising and lamentable because Nasdaq had every expectation that all markets would adhere to trading halts under NASD Rule 4120(a)(6)," according to Nasdaq General Counsel Edward Knight.

"In September and October of 2002, Nasdaq discussed trading halts under NASD Rule 4120(a)(6) with the UTP Operating Committee and the majority of markets, including ArcaEx, supported Nasdaq's authority. Representatives for ArcaEx even suggested to Nasdaq that NASD Rule 4120(a)(6) should enable Nasdaq to institute a marketwide trading halt when broker dealers connected to ArcaEx or other exchanges have systemic problems of the sort that occurred on Friday in COCO," according to the letter.

ArcaEx officials said no such agreement was ever made with Nasdaq. And they labeled Nasdaq's actions as anti-competitive. "Nasdaq is acting like a regulator and that should stop," said Carlson, the ArcaEx spokesman. "We're calling for an investigation of this trading halt by the SEC." He added that Nasdaq's application to become a for-profit entity should also be put on hold until the Securities and Exchange Commission investigates this incident.

Nasdaq officials also warned that, without agreed upon rules for trading halts, the individual investor is hurt.

"The lack of coordination among the markets caused widespread confusion and unnecessarily harmed investors," Knight wrote. "At the time trading resumed on ArcaEx, it was unclear whether certain trades would be broken or would stand, and firms had no reasonable way of determining their outstanding position at that time."