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December 18, 2007

Nasdaq's Opening Gambit

By Nina Mehta

A former specialist takes a different view. "Speed does not price assets," says Anthony Corso, a managing director at Rosenblatt Securities. "In a bull market with low volatility, you may get away without high-touch service, but not in a volatile market like August." Corso, who previously ran LaBranche's NYSE floor operation, stresses that openings and closes can be risky times to trade and that specialists still have a level of accountability that gives their auctions more relevance than a computerized system.

Air Pockets

A pure auction, Angel concedes, could have "air pockets in demand" and a lot of volatility associated with the prices it produces. But he thinks Nasdaq's auction is battle-tested on Nasdaq-listed stocks and addresses imbalances at the open by attracting imbalance-only orders.

Still, Angel acknowledges the powerful role humans can play at difficult trading times. The problem, he says, is that specialists can no longer earn a profit doing what they've been doing. And if they can't earn a profit, they can't fulfill their obligations. In addition, Angel points out, fewer bodies on the floor of the NYSE means that specialists have fewer people to negotiate with face to face as they seek out the right price for a stock.

UNX's Rosen doesn't expect Nasdaq to capture the open from New York or Amex in the near futureif at all. But he says Nasdaq has begun changing the game by questioning what the opening print means when an exchange's market share dips below 50 percent in its own listed securities, or when its competitors trade more than it does. In his view, an opening print remains a "static concept," but could ultimately be defined by the client. And if that happens, and the volume in particular securities on the primary market "isn't the determinant of price, at some point that exchange could be vulnerable to a reasonable alternative in those names," Rosen says.