Commentary

Elaine Wah

Modern Markets, Modern Metrics - A Blog By IEX

In this blog by IEX's Elaine Wah, the newest public exchange looks to refute public claims that the metrics it uses are designed to inflate its own volume numbers and mislead people.

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February 1, 2004

At Deadline

By Editorial Staff

Chicago

*The Chicago Stock Exchange (CHX), in a bid to attract more professional order flow, is introducing ECN-like automatic executions. The Windy City bourse is planning to implement, by mid-year, a mechanism to satisfy fast-draw pros, such as statistical arbitrage traders and options market makers. These traders, who typically want immediate executions, get impatient with the CHX's current execution speeds, according to CHX president Dave Herron. They will regularly cancel orders within a few seconds if they aren't filled. New auto-ex functionality would not obligate the Chicago's specialists, a group that has de-emphasized guaranteed fills since the advent of penny ticks. It is intended chiefly to facilitate matching of orders from customers and from market centers that arrive via the Intermarket Trading System (ITS). To make the new system work, the CHX also plans to grant automatic executions to ITS orders. That way, an ITS order will have a chance to trade against a stat arb trader's limit order, for example, before it is cancelled.

Trade Through

*Don't expect any change in the trade through rule until at least next year. That's according to Matt Andresen, the former CEO of Island ECN, now the head of global trading at Sanford C. Bernstein. In a keynote speech at the annual conference of the Security Traders Association of Chicago (STAC), Andresen speculated that the Securities and Exchange Commission might aim for a "global trade-through rule" for both the NYSE and Nasdaq. That might play into Nasdaq's hands. Nasdaq has previously stated that if the SEC is prepared to tinker with the parameters of price and time priority on the listed markets, then it follows that Nasdaq might be granted some relief in its application for stock exchange status.

Knight

*Revenue and earnings were up in the fourth quarter at Knight Trading Group. Revenues jumped by a third to $201 million compared to $141 million for the fourth period of 2002. Net income was $9.9 million compared to a loss of $3.5 million in the same period of 2002. Earnings per share diluted were eight cents in the fourth quarter compared to a two cent per share diluted loss in the like period a year before. Knight officials said revenues were stronger than they have been for two years, previous to the introduction of decimalization. This is widely blamed by market makers for hard times. Knight went through its own hard times 12 months ago. The company dropped some 100 employees last year and now says it has about 930. "Knight has come a long way in a short time," said Knight CEO Thomas Joyce.

Cross

*Nasdaq said it has scheduled the introduction of a closing cross for March 29. The ambitious project is at an advanced stage but there could still be potential regulatory and technological roadblocks, observers say. Nevertheless, the rollout is likely to start with ten Nasdaq-listed stocks from the Nasdaq 100, the Standard & Poors' 500 and the Nasdaq Biotech indices, according to Adena Friedman, Nasdaq's head of strategy. After an initial pilot of a few weeks, Nasdaq said it would launch all stocks in those three indices. Nasdaq would then make all its securities available for trading in the new call auction. Industry testing is scheduled to begin in March. Nasdaq also plans to launch an opening cross this summer, Friedman told the crowd at the STAC conference. The two services, intended to act as price discovery mechanisms, will replace the current methodology for determining Nasdaq's official closing and opening prices.