FYI Members Midweek News Update Advance Coverage of Issue Week Monday, April 15, 2002 Island to Participate in SuperMontage in Blow to ADF Island, the leading electronic communications network, said it has decided to join SuperMontage, Nasdaq's next-generation trading platform, in a move that could undermine other ECNs' hopes to build a significant alternative pool of liquidity outside of Nasdaq. "Our current plans do call for us to be full participants in SuperMontage," Island EVP Andrew Goldman told Securities Industry News, confirming the information that was first disclosed in a conference call with Island members late on Monday. Island had already said it would join the National Association of Securities Dealers' alternative display facility (ADF), but only for New York Stock Exchange and American Stock Exchange issues. Until Monday, it was unclear where Island would elect to trade Nasdaq issues, including the 57 large-cap stocks for which the ECN is the venue with the most liquidity. Many ECNs have expressed fears that SuperMontage--which will display five levels of market depth and offer other ECN-type features when it starts in July--would prove too much of a competitor. They were hoping to create a strong alternative pool of liquidity on the ADF, the quote-display and trade-reporting facility whose construction was mandated by the Securities and Exchange Commission in order to comply with off-exchange regulations. Without Island, the ADF is unlikely to attract enough liquidity to truly compete against SuperMontage. Industry sources said Instinet, Bloomberg Tradebook and Brut had been the most intent on basing their strategies on ADF participation. The third-largest ECN, the Archipelago-RediBook team, was not going to be a long-term player on the ADF because it will fully operate as the Archipelago Exchange by early next year. Also, younger ECNs, such as MarketXT and Track, have already joined SuperSoes, SuperMontage's predecessor, and are likely to keep on tapping the main pool of Nasdaq liquidity. "Island has a strategic perspective on how to use the ADF and participate in SuperMontage in order to get the greatest value and benefits to its subscribers," Island's Goldman said. Island's decision to post its quotes on SuperMontage--likely to remain the single largest pool of liquidity for Nasdaq stocks for the foreseeable future--can only help the largest ECN strengthen its leadership position for Nasdaq stocks. However, using the ADF for NYSE and Amex issues could give Island a chance to build up liquidity in listed stocks-- beside its virtual domination of the QQQs, the tracking stock for the Nasdaq-100 index and the world's most liquid security. (Reported by Isabelle Clary
I heard this might happen, but damn, I don't think this will bode well for traders in general (especially OTC traders). My initial response is one of minor outrage, seeing Isld cave in to the NASD (nothing new in this industry, but still unexpected). I'm making calls....see if there is any good news to this....
Don, exactly what is it you think this means to OTC traders, and what is the big fear? I understood what a jab it was when the SOES tiers went from 1000 minimum to 100, but can't quite get a handle on what horrible fate awaits us with Super montage, and now ISLD participation.
I'm sure ISLD will still be able to be accessed directly just like today. So what is the big problem?
My main concern is pricing, not liquidity. Sort of like having all "crude oil" orders routed to OPEC (NASDAQ for OTC traders). Any time there is a monopoly with bias (vs. NYSE 'monopoly without bias....the Specialists have more exacting rules to follow, at least at this point, although NASD is getting better), I get concerned. Simply put....routing all the orders back to the "good ole' boys" makes me nervous. The OtC market got much better in recent years (and took a lot away from the NASDAQ MM"s), and now they are just taking their "turf" back. We'll have to see how it plays out...I've got my "feelers" everywhere....and would like to hear comments from everyone on the board here as well.
The big problem is price time fee consideration, if Island charges a fee, then you will be filled last in line.