Sparks Fly on Market Structure Panel over Nasdaq Super Montage

In a debate on market structure at the SIA Technology Management Conference, two ECNs-Bloomberg TradeBook and Instinet-accused the Nasdaq Stock Market of being anti-competitive with respect to its so-called Super Montage proposal pending at the SEC. Kim Bang, president of Bloomberg Tradebook ECN said that Nasdaq "is using their regulatory position to transform themselves from a market-of-markets delivering member quotes and providing order routing services, to become more of a monopoly."

However, Michael Edleson, senior vice president, chief economist of the National Association of Securities Dealers, Inc., positioned the Super Montage proposal as an open, competitive platform and said he was against the central limit order book approach. "It shuts out a lot of the competition," he said, adding, that he was coming at the issue from the same philosophical standpoint as Bang.

But Bang warned: "Ladies and gentleman, don't be deceived by Nasdaq's position ... the intentions of focusing on open competition. If you take a look at the details of the Super Montage, I think you will find this proposal is worse than the last proposal that was put forth," he said, referring to the central limit order file proposed a year earlier.

Bang said "The Super Montage proposal, if adopted by the SEC, would severely damage the competitive nature of the way common stocks are transacted today. Market makers and ECNs will be stripped of their identity and competing among themselves for order flow."

The Super Montage proposal-officially called the Nasdaq Order Display Facilty or Window-was filed with the SEC in October, and is currently under consideration. It would aggregate and display quotes and orders to buy and sell Nasdaq stocks from market makers as well as ECNs.

Without criticizing the details of Super Montage, which he said could be worked out, Joel Steinmetz, vice president for equities and director strategy for Instinet, said the problem is separating the regulatory arm from the business arm. "This was forcing both broker/dealers and ECNs to fall into a category of competition with their regulators."

Steinmetz said that Nasdaq should not change the market structure until it changed its governance structure, referring to its privatization. "However, to do so prior to eliminating regulatory authority over its competitors is insane," says Steinmetz, who notes that Instinet's staff calls it Super Monopoly as opposed to Super Montage. 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