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An Interview with Nasdaq’s Christopher Concannon

If Christopher Concannon were a linguist, then market structure would be his language. As executive vice president of transaction services for the Nasdaq stock market, Concannon is responsible for the management and operation of Nasdaq's transaction platforms, including SuperMontage, its automatic-execution system.

WS&T: When is that scheduled to happen?

Concannon: March 1 is when we go live with listed stocks. [Ed. Note: This was postponed to March 8.]

WS&T: You're really gearing up for listed stocks. I understand the Nasdaq market makers have around 13 percent market share.

Concannon: It does vary from month to month, but it bounces around 13 to 15; it never goes below 13 or 12.

WS&T: John Thain announced that he intends to lift the constraints on Direct+.

Concannon: Some of the constraints.

WS&T: He's lifting the 30-second time parameter for executing consecutive orders for the same account.

Concannon: That's a material constraint.

WS&T: And the size, which is currently limited to 1,099 shares?

Concannon: That's not material. Remember, he's lifting it, but it's still capped by the displayed size. So you have to analyze what is the average displayed size in New York, and in fact in some stocks, it's lower than the cap. The average displayed size is bigger than the 1,100-share cap that's there now. So in some stocks it can go up to 20,000 shares on average displayed. But there's a number of stocks, in fact some active stocks, where the average displayed size of the bid offer is around 1,000 shares and lower. So you're lifting a cap of 1,100, but what have you really lifted when you can't really lift on average more than 1,000 anyway?

WS&T: Does it mean that anyone using Direct+ is going to be limited to 1,000 shares? Concannon: Every stock has an average size that's displayed, so whatever that average is, that's what you are limited to. So there's still an embedded cap in Direct+, but there's nothing in the system that delivers it; it's really whatever the displayed size is limited to. Most automated markets allow you to trade down the depth of book. So today on SuperMontage, if you need 10,000 shares and there's 1,000 shares on the bid displayed and 9,000 shares a penny less, you can get all 10,000. There's no restriction. But if I put a restriction that you can only lift what's displayed, I'm not an automated market. I'm meeting my firm-quote obligations with automation. I'm not an automated market

Can I go back to Direct+ with another point? The one restriction that is not discussed with all the changes is what's called the 100-share restriction. If there's 100-shares on the bid or offer, Direct+ will not execute. It's frozen. And why that feature is [I don't know], but it's always been there. And so many times if a specialist doesn't like the way Direct+ is trading against him, he can put in a 100-share bid or offer. And he's just shut off Direct+.

WS&T: He puts in a 100-share bid or offer in his quote?

Concannon: Direct+ freezes.

WS&T: Why would it do that? Is there a minimum order size?

Concannon: There is apparently a minimum that Thain hasn't really talked about. There's a minimum restriction on Direct+. It's a very important restriction. I personally know people that trade over Direct+ and that's a restriction they complain about on a regular basis.

WS&T: The SEC is expected to make a decision on Feb. 24?

Concannon: They're going to propose a new trade-through rule, that's our understanding.

WS&T: From what I've read, it's likely to classify fast markets and slow markets. You can't trade through a quote from a fast market, but you can from a slow market. So Thain said we're going to get classified as fast market.

Concannon: I think he actually said that he [the NYSE] was classified as a fast market. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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