SEC Terminates ECN Status for MarketXT

Discussion in 'Trading' started by BankerBlueChips, Sep 20, 2002.

  1. One down ----- Three to go !!!!!

    Bye - Bye ATTN, NXTD and TRAC.

    Those traders who flip stock beware...... if LSPD couldn't get paid at 7.50 per share in an auto-execute platform, what makes you think that an ECN is gonna get $9 or $15. They must lower their ECN price to survive, hence lower the rebates and in turn lower your paycheck by as much as half....OUCH !!!

    And those that think SM is gonna be better (More fills), remember odd-lots and accidental crosses with lots and lots of tickets !

    Read Below

    SEC Terminates ECN Status for MarketXT
    by Isabelle Clary Senior Staff Reporter

    The Securities and Exchange Commission has terminated MarketXT's status as an electronic communications network after the ECN ran into financial troubles, partly linked to its innovative trading strategy on Nasdaq's auto-execution system, SuperSoes. "The division of market regulation hereby withdraws its no-action letter to you dated Jan. 4, 2000, as extended by letter dated March 29, 2002, concerning MarketXT's status as an ECN," the SEC said in an Aug. 8 letter to Katuria Smith, general counsel for MarketXT. The SEC made the letter public recently.

    MarketXT ceased operating on July 30 amid industry talk that the ECN had run into financial difficulties. MarketXT had switched clearing firms from SWS Securities to Penson Financial Services in mid-July. At the time, industry sources said the ECN owed about $2 million to SWS Securities and was not able to meet its net capital requirements. On March 29, the SEC had confirmed in a no-action letter to MarketXT's counsel Orrick, Herrington & Sutcliffe, that "MarketXT is an electronic communications network as defined in the amendments to the quote rule and the limit-order display rule." The SEC's ECN approval for MarketXT, however, was temporary. "The division...will consider extending, modifying, or revoking its temporary no-action position before Jan. 6, 2003, based on its continuing experience with MarketXT's compliance with the terms of this no-action letter and the operation of the ECN display alternative," Robert Colby, SEC deputy director for market regulation, also wrote at the time. MarketXT executives were not available for comment. The ECN's Web site no longer displays any trading information and only mentions "migrating to a new server system." In December 2001, MarketXT became the first ECN to join Nasdaq's SuperSoes, where it met with success, quickly becoming SuperSoes' top liquidity provider, with as much as 50 percent more volume than number-two Knight Securities. In SuperSoes' auto-execution environment, market-makers could not avoid trading against the ECN, which would, in turn, charge them execution fees. But many market-maker firms declined to pay the fees because they were not members of MarketXT and had no way of avoiding trading against the ECN. MarketXT also promised large liquidity rebates to its members, such as Momentum Securities, its sister online broker in the Tradescape Corp. group. The ECN ran into problems when it found itself having difficulties collecting the execution fees needed to pay the liquidity rebates. E-Trade bought Tradescape in mid-June in a deal that did not include the ECN. MarketXT's volume, which came in large part from Momentum Securities, declined sharply following the merger. Japan's Softbank was a major investor in both E-Trade and Tradescape and essentially withdrew from the two online brokers when they merged. MarketXT CEO Omar Amanat became head of professional trading at E-Trade Financial following the merger, but left after a few weeks to focus on the ECN's future, according to industry sources. They said Amanat was looking for new financial partners to help develop the ECN, powered by its new state-of-the-art platform, LightSpeed. However, given the difficult business environment, such efforts failed, they added. The Track ECN has followed in MarketXT's footsteps, joining SuperSoes in mid-April and vaulting to the top liquidity provider spot in late August. Track said it has worked hard to avoid the problems encountered by MarketXT on SuperSoes and will join Nasdaq's next-generation platform, SuperMontage, next month, which will put the issue to rest. On SuperMontage, market participants have a choice of priority-price/time, price/time with fees, and price/size.

  2. sub7slak


    Good stuff!
  3. This whole liquidity trading thing , as I've said elsewhere, is nothing more than an extortion scheme.

    As such it is doomed.
  4. I've noticed a lot of guys are against liquidity trading.

    Personally I hope it stays. They are making money in a market with little momentum.

    But when we have a surprise rate cut or something....

    I will be the guy hitting buy 1000 on all my baskets across the board and I imagine the liquidity traders are who I will be getting my stock from.

    It works both ways...

  5. EXIT.... XT sure made a quick one!

    Thanks for the update Banker.

  6. The junk they trade won't be moving enough to matter anyway. JSDU will uptick 3 cents.
  7. Banker,

    I agree TRAC may disappear, but attn and nxtrd have to be hit with snet, therefore the trader has to make an effort to trade with them. This obligates the contra to pay the fee.

    I guess only time will tell
  8. Yeah and besides they will have their pair strategy working at the same long 100,000 JSDU and short 100,000 PALM lol
  9. Next month in supermontage, they will both be auto execute ECN's like LSPD and TRAC. There will be no way to avoid them. Who ever is there first will be the liquidity provider.

    Also, there is no selectnet in supermontage. You are either in SM or in the ADF. If you are in the ADF, you need to route directly to the ECN. And since 90 % of MM don't have direct lines to ATTN and NXTD, they cannot access their liquidity. So therfore, they must be in SM. But if they're in SM then they become auto - ex. This creates the dilemma that LSPD encountered. People will just not pay them.

    As far as TRAC, I expect them to go "Free" This means if you hit them it would be like hitting a MM. In this model, NASD gets $1 per 1000 and TRAC gets $1 also. Plus it's guaranteed payment and gives you better fills since you are an equal with MM in the Price/Time priority scheme. This is why traders will use this ECN, and I mean bigtime, especially if TRAC is the only one to go free. LSPD was going to use this strategy until they got shut down.

    Read the SM tutorial at and you can understand more about what is really happening. Hope this helps.

  10. Carboxyl


    Anyone seen ADF in action?
    #10     Sep 25, 2002