Commentary

Jos Schmidt
Traders Magazine Online News

Reducing the Regulatory Burden on Public Companies, Yes Please But...

In this commentary, NEO's Jos Schmidt discusses regulatory requirements and needs in the Canadian equity markets.

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November 1, 2004

At Deadline

By Editorial Staff

Smart

*NOCI, a division of the Attain ECN, is growing. The second of two books sponsored by Domestic Securities' Attain, NOCI has seen a sharp spike in Nasdaq volume. The NOCI book executed about 20 million shares per day during August and September, according to Nasdaq. That compares to less than five million in each of the first 17 of its 19 months of operation. Now NOCI is one of the top ten liquidity providers to the Nasdaq Market Center. This success is attributed to an August price cut and the Nasdaq takeover of Brut. NOCI charges traders two-tenths of a cent per share to take liquidity, the lowest of the five major books. NOCI does not offer rebates to liquidity providers, having signed agreements with several trading houses to supply liquidity, according to Domestic EVP Larry King. The exec says NOCI cut prices to attract smart-routing traders who are upset about the loss of an independent Brut.

Data

*The SEC's NMS market data proposal calls for "further micromanagement through an unbelievably complicated reshuffling of the revenue distribution between market centers." That's according to SEC Commissioner Paul Atkins. He says that the plan assumes that "SROs need the money to fund their regulatory function." The SEC plan would change market data formulas "to better reward SROs for their contributions to public price discovery."

However, Atkins also contends that the current market data proposal assumes that the government should "support inflated pricing for a public good in order to cross-subsidize the functions of entities that are quickly becoming public companies." Instead, Atkins advocates that SROs charge "an upfront fee" for data services.

Citadel

*Citadel Derivatives Group has been approved by the Chicago Board Options Exchange as a designated primary market maker. Citadel, which was still awaiting final approvals, was loading for bear. It was in the process of buying the books of John Najarian. That would give Citadel specialist abilities in some 50 options classes. With the addition, Citadel becomes the single largest market maker in equity options on the International Securities Exchange. The firm was also given primary market maker status for Google options in August. A Citadel official, Matt Andresen, president of Citadel Execution Services, said the expansion doesn't affect the ISE operation.

Replacement

*Network providers are standing in line to replace the Intermarket Trading System. NYFIX and SIAC are petitioning the ITS Operating Committee to consider their technology if Reg NMS leads to the demise of the ITS. The Securities and Exchange Commission's Reg NMS proposal raises questions about the future of the 30-year old ITS. Today, the ITS network is run by SIAC, a division of the New York Stock Exchange.

The NYSE has offered to relinquish its veto power on the ITS Committee if SIAC is permitted to run the network. Order routing vendor NYFIX has requested a competitive bidding process should the ITS be abolished. It wants something similar to what occurred in the Nasdaq market in 2002. At that time, Cicada won the right to be the exclusive SIP, or Securities Industry Processor, for the Nasdaq market. NYFIX maintains any ITS replacement should run on the FIX protocol, be a neutral, non-exchange owned utility, and include an audit trail.