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July 31, 2004

The Beantown Exchange Moves Into the Fast Lane

By Peter Chapman

The Boston Stock Exchange, in a move that could qualify it as a "fast market," is offering automatic executions.

The New England bourse recently launched its Instant Liquidity Access (ILA) product, giving members immediate fills against the BSE quote when it is equal to the NBBO. The new facility was modeled on the New York Stock Exchange's Direct+ system and is limited to orders of between 200 and 1,000 shares.

The BSE becomes the second of the nation's five floor-based stock exchanges to offer automatic executions at a time when the Securities and Exchange Commission is pressuring the group to do so. The SEC's Reg NMS proposal would allow fast' electronic markets to trade through slow' manual markets. "We've always viewed ourselves as a fast market," says Mike Curran, chief executive of the BSE. "The ILA just makes us faster."

For electronically-oriented traders, the new BSE facility offers both pluses and minuses. On the plus side, orders are immediate-or-cancel. If an order does not execute in full, the balance is cancelled. It does not drop into the hands of a specialist as happens with Direct+. "In the world of algorithmic trading," says Jeff Brown, director of product development at UNX, a BSE member firm, "IOC is a critical order type."

On the minus side, BSE quotes represent the NBBO only 12 percent to 15 percent of the time, according to Curran. Also, the BSE has no immediate plans to offer 100-share fills. Thus, a specialist could "turn off" ILA with a 100-share order.