Tradebook Says No to SEC Request for ADF Certification

Responding to the Securities and Exchange Commission's recent request for ECN commitments to the National Association of Securities Dealers' Alternative Display Facility, Bloomberg Tradebook has decided to post all of its Nasdaq quotes on SuperMontage -- upon the launch of Nasdaq's order-routing and execution network. Tradebook, eventually, may post all of its Nasdaq quotes on both SuperMontage and the ADF, a quote display and trade printing facility that has thus far received no firm support from the ECN community. However, Bloomberg's ECN will not have connectivity to the ADF for at least another three months.

Last week, the SEC asked ECNs to send in letters certifying that they would participate in the ADF -- a facility that was supposed to provide an alternative for Nasdaq participants that did not want to quote on SuperMontage. The commission ruled that if any ECNs certified that they would post a "substantial" portion of their Nasdaq quotes on the ADF, the rollout of SuperMontage would be delayed until Oct. 11, to give ECNs time to get up and running on the NASD's facility. But if no ECNs certify their support for the ADF by Sept. 6, SuperMontage, the SEC said, will have the approval to launch immediately.

If the latter scenario unfolds, Nasdaq has said it will launch SuperMontage on Sept. 17. As of Sept. 5, it remained unclear whether the SEC has received ADF certification letters from any ECNs, because commission officials did not return calls seeking comment by press time.

However, citing time restrictions, Tradebook President Kim Bang says the ECN will definitely not send a certification letter to the SEC. The commission, Bang says, is essentially giving ECNs that want to participate in the ADF six weeks to connect to the unproven facility. But ECNs, he says, need more time to do all of the programming and testing necessary to make sure the ADF will have sufficient liquidity and transparency.

Noting that it took "months" of testing for Tradebook to certify itself as ready for SuperMontage, Bang says that it would be "imprudent" for the ECN to commit to posting a "substantial portion" of its Nasdaq quotes on the ADF by Oct. 11. Tradebook, he says, really needs about "three to four months" to build the proper connectivity, and to measure the ADF's liquidity and "quote visibility" capabilities.

However, Bang also says that Tradebook's ultimate goal is to have all of its Nasdaq quotes posted on SuperMontage and ADF simultaneously -- to ensure that its quotes have maximum exposure to Nasdaq participants. Therefore, he says, Tradebook will continue to take all the necessary steps to establish connectivity to ADF, and expects to have a link to the facility in place by next January.

Meanwhile, the two largest ECNs -- Instinet and Island -- have not finalized their SuperMontage/ADF plans. Last week, an Instinet official said the ECN was leaning towards posting its quotes in the ADF. But that same official also expressed concerns about ECNs not having enough time to test the facility. Officials from Instinet and Island declined to comment for this story. But it seems likely that if Instinet sends the SEC its ADF certification by the Sept. 6 deadline, Island will follow. Instinet and Island formed a merger earlier this year, but have yet to finalize their union.