Super Montage..

Discussion in 'Order Execution' started by Don Bright, Apr 2, 2002.

  1. Thought this may be of interest to everyone. I haven't "digested" all the fees yet, and am not sure of "pass throughs" - but will post more when I know.

    10:07 AM 2 Apr 200211:21 ET
    DJ Nasdaq/SuperMontage -2: To Launch In Late July

    NEW YORK (Dow Jones)--The Nasdaq Stock Market said once the pricing schedule for SuperMontage is approved by the Securities and Exchange Commission, it will take effect with the launch of the new trading system in late July.

    In a press release Tuesday, Nasdaq said execution fees for SuperMontage will be the same as for SuperSoes, including 0.2 cents a share to access liquidity and a 0.1-cent-a-share liquidity-provider rebate.

    In addition, there will be no charge for internalizing, or self-preferencing, at the best bid and offer, and no order-entry fee for non-directed orders, eliminating the 10 cent SuperSoes order-entry fee.

    There will also be a reduction of the cancellation fee to 1 cent from 25 cents for non-directed and preferenced orders.

    Nasdaq said it is "well-positioned" to launch SuperMontage this summer, and is working closely with firms to ensure a smooth rollout.

    SuperMontage will replace trading system SuperSoes, which was implemented in July 2001. External customer testing of SuperMontage will begin this month.

    Exchange Web site:
  2. Hey Don,
    What is the interface for Super Montage going to look like anyways? Is the level II going to retain the same look and how is S.M. going to impact the functionality of current levleII trading platforms? Just curious.
  3. The people at GS/SLK are working on the platform now, and say it will be "transparent" - I'll keep you posted.
  4. Anyone know what the maximum order size will be for Supermontage?
  5. ChrisRT


  6. Same as with SuperSOES...999,999 shares
  7. I watched the video the nasdaq put together, and I must say it has all the appearance of being beneficial to the 'industry" ....however, it may be the industry from 5 years ago when every order was placed within their infrastructure.

    I find it very interesting that they make great points about "time priority" "size priority" "away from fragmented markets"...gee it almost sounds like the NYSE...mmmmm.

    I know that Isld and the others have either given up or lost their battles in opposition to the SMontage...which, again makes me wonder how efficient the order routing will really be. I may just start trading more Naz stocks to find out...(only kidding!)...
  8. ChrisRT


    A write-up that I posted to Realmoney's Trading Track last month if you are interested:

    In the last year, the Nasdaq has implemented two major changes to its system in Decimalization and SuperSOES. Coming up in July, if everything goes as planned, will be the implementation of SuperMontage, Nasdaq’s fully integrated order display and execution system. Testing should begin in April and then rolled out by July or into the early fall season at the latest. With SuperMontage, there should be two affected parties. Traders, like you and I, and Electronic Communication Networks (ECN).

    Currently, our fragmentation in the marketplace causes us to use several different routing options to find the best sources of liquidity to get the orders we place filled. We have ECNs, Market Makers, Exchanges, etc. The Nasdaq, while trying to be viewed as one large central order book (although it’s really not) will in effect create a single point of entry to access all the liquidity with one single order. The caveats to the ECN-SelectNet-SuperSOES limitations will no longer be present as one execution order will be placed to match against all available liquidity.

    Order quotes will be at multiple prices through Preferenced Orders, Directed Orders, Reserve Orders and Internalized Orders. In a nutshell, we have much better transparency in the manner we look for liquidity to turn our trading decisions into trading positions. Orders will still be time sensitive as to priority. There will however be three options. Price/time priority will be the default order. This simply shows a first in – first executed basis. There will be a price/time fee consideration, where traders will have knowledge of an undisclosed fee for a particular order, and may not wish to hit that price even if it’s a penny or two better than a non-fee order. Finally, there is a price/size priority, where one can designate a size requirement in order for the order to be filled.

    The Montage will display orders 5 levels deep, but will only show the Market Participants best price on the screen even if this participant has multiple orders outside the best prices. The SIZE ID will be an aggregate amount of shares at a price level not subject to showing how many participants make up this size, nor how much size each participant may have. This way, market participants will be able to enter more size into the system without subjecting themselves to anonymity.

    One major feature that SuperMontage will entail is the ability to get rid of locked and crossed market quotes. This essentially takes care of arbitrage trading and allows for many automated or position management systems to trade without fear of their systems locking up on mis-quotes. If an order shows as locking or crossing the market, it will automatically turn into an executable limit order.

    A few years back, traders had an auto-execution feature available to them during times of extreme volatility. They would monitor an ECN order book to see when the best bid of the ECN was greater than the best ask on the Level 2 screen. At this moment, they would be entering the auto execution order at the best ask, then turning around and immediately offering it out on the ECN book for a quick arbitrage profit. SuperMontage will effectively get rid of this ability.

    As traders, this increased transparency will be a positive feature for us. For those that have fears of execution routes, this won’t be much different than SuperSOES capabilities. The single point order entry should alleviate some fears about order execution, but don’t expect it to cure all your execution inabilities. The Market Makers will need to adapt just as they have to decimalization and SuperSOES.

    In an effort to increase a competitive edge against the ECNs, SuperMontage is effectively trying to limit the necessity for the ECN by having all available liquidity presented through the internal order system. Proactive ECNs, ARCA and REDI, offer nice functionality to traders. Their ability to work the order with so-called "smart routing" is their edge and makes them ECNs of choice for many. Supermontage seems to be competing with this, too. Smaller routing ECNs will most get hurt by this, and quite possibly put into extinction as another fatality of the post-Internet mania progression. However, ECNs such as Instinet (INCA) and Island (ISLD), two of the largest, should still be able to function effectively in this environment as they are providing massive amounts of liquidity.

    As I see it, their viability will be tied to how much this “SIZE ID” is used by non-attributable parties. Right now, participants can mask their identity, size and intentions through ECNs such as INCA and ISLD. One more consideration will be transaction costs. If it costs less to use the SIZE ID, rather than entering a large order through Instinet (INCA), then it would seem reasonable to expect these larger ECNs to be affected. Nothing is clear on how this affects the ECN community as of yet, but by late this year, statistics on ECN activity should be more evident for us assuming that SuperMontage gets rolled out in early summer. SuperSOES was continuously pushed back. I wouldn’t expect much difference in the rollout of SuperMontage.

    Overall, the sweeping changes taken together as a whole have improved our transactional cost in trading and created a much more level trading environment between traders and institutions. I expect the lower costs and increased transparency in SuperMontage will increase this positive effect for us. How the ECNs fare will be an interesting progression. However, it’s too early to expect which ECN, if any, emerges from SuperMontage relatively unscathed.
  9. I'm sure this new gimmick will be very exciting for everyone, but It's already boring me. Last time I looked 99.9% of the game was picking an entry and exit.

    As long as I can get a fill when I press the button, the mechanics are of little interest.

    When's the last time you could arb ISLD against SOES? And how hard was it to get that 'auto execute' referenced in the above message. If it was so easy to buy the stock, you would not have seen the crosses.

    How much different will Super Montage be from what we have now?
  10. I just hope it isn't too different. The problem before ECN's was that you couldn't get fills at the NBBO most of the time in the real world. You could get in the SOES que, but if it was going to be a good fill, your chances of getting filled were greatly reduced. It was like trading listed stocks only worse. Hopefully, Super Montage will not create a way for MM's to go back to their old dirty ways. I guess time will tell how it all works in the real world.
    #10     Apr 3, 2002