As U.S. stock exchanges (the NYSE and AMEX) began a pilot quoting 13 stocks in decimals, one major exchange was missing. Nasdaq is busy architecting SuperMontage, a proposed order display and execution platform that is going to potentially change the dynamics of competition in U.S. stock trading.
This month's cover story explores the controversy surrounding SuperMontage, Nasdaq's plan for increasing liquidity and price transparency among market makers, investors and ECNs. See, "SuperMontage," Accusations are flying that SuperMontage will wipe out competition from ECNs and as a regulator, that it's wearing two hats. Meanwhile, skeptics cast doubt on whether Nasdaq has what it takes to manage the technology and make the system work as rapidly as it will need to. Though the fate of SuperMontage occupied center stage for America's institutional investment community, in late August, all eyes were fixated across the pond where OM Gruppen , the Swedish developer of trading software, was staging a hostile takeover bid for the London Stock Exchange.
Who could imagine that a technology company, known for automating derivatives markets, would potentially own Europe's leading stock exchange with such a hallowed history? And yet the cost of keeping up with the rapid pace of technology advancements is one of the forces propelling exchange alliances, mergers and privatizations. Nasdaq, it turns out, is also a joint venture partner in iXfor International Exchangethe proposed name for the merger of the British and German exchanges. At press time, news stories speculated that Nasdaq could jump into the fray by making an offer to purchase the LSE. One of the reasons that Nasdaq is allying with foreign stock exchanges"to build a market of markets" is to encourage overseas companies to go public on Nasdaq and list on a virtual exchange.
By aligning with the Frankfurt exchange, iX will control 53% of Europe's stock trading, reports say, and also position itself on Xetra, an advanced trading platform that's already been tested in Frankfurt.
Though OM is a newcomer to equitiessince it started in derivativesin the early 90s, it sold some trading software to the American Stock Exchange. But where it won in New York, it lost in Chicago. I can remember meeting OM executives at the Futures Industry Association show where they told of their pilots inside Chicago futures and options exchanges, only to be rejected for proprietary development. Today, exchanges cannot afford to snub innovative technology companies.
As evidenced by this issue, new trading start ups are emerging by the secondwhether it's Bond Connect commencing auctions for European debt and municipal bonds See, "Bond Connect Eyes Coverage of European Debt and U.S. Municipal Bonds," , or its BrentBroker creating an electronic system for energy traders See, "New Energy Trading System To Launch," .
Whichever way the OM/LSE/Frankfurt takeover triangle works out, (and it will probably be resolved before you read this), it signals a new era in exchanges where trading technology is almost on equal footing with market cap. In a classic David vs. Goliath battle, OM is facing off against London and Frankfurt.
Whatever happens, the ECNs vs. Nasdaq will be watching. 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