Electronic communications networks (ECNs) that rely heavily on the FIX messaging protocol may have to think twice about posting their Nasdaq quotes on the so-called alternative display facility (ADF) that the National Association of Securities Dealers is currently developing. The ADF, which will run on technology supplied by Stockholm, Sweden-based OM, is supposed to provide an alternative for ECNs that do not want to display their Nasdaq quotes on the Nasdaq Stock Market's soon-to-be-launched SuperMontage order-routing and execution platform. But today, the ADF, which is expected to go live by the end of June, is not FIX-compliant.
OM, a hybrid exchange-operator/technology vendor, is building a platform for the ADF based on its Saxess trading system. Instead of relying on FIX, the ADF platform, in its current format, will run on the XTP messaging protocol. "The ADF is not a FIX-compliant system, which is the language that our programmers run to interface with other systems," says William O'Brien, senior vice president and general counsel for the Brut ECN. "Accordingly, our programmers say that the resources we would have to spend to code and interface with the ADF, in order to use it, would be very significant."
Brut, in fact, has already chosen to post its Nasdaq quotes on SuperMontage, which is scheduled to launch on July 29. But O'Brien says that in order to attract other ECNs, one of the things the NASD and OM must do is create a "FIX wrapper" that will allow market participants to "interact" with the ADF using FIX.
Doug Shulman, executive vice president in charge of market operations, technology and corporate development at the NASD, retorts that, to date, there simply has not been enough demand for FIX functionality from potential participants in the ADF. "Today, the system is built on a standard XTP interface, which is what OM uses. But we have told market participants that if they indicate that they are going to give us a significant amount of traffic and need (the ADF) to be FIX-compliant, then we'll look at that seriously. The problem right now is we have people saying it should be FIX-compliant, but not telling us that, if it's FIX-compliant, they'll join," he explains.
If they receive firm commitments from ECNs that need FIX, says Schulman, the NASD and OM will "add a FIX-wrapper to the quotation piece" of the ADF. However, he says that it does not make business sense for the partners to spend money on FIX integration without enough participation commitments from ECNs. Shulman says that "some" ECNs have already agreed to post their quotes on the ADF, but he declines to name them. Brut and the MarketXT ECN have signed deals to post their Nasdaq quotes on SuperMontage.
Island, the largest ECN, has publicly stated its desire to display its New York Stock Exchange and American Stock Exchange quotes on the NASD's quote display and trade-reporting facility. But on the Nasdaq side, Island has also said that it is highly unlikely that it will post its over-the-counter quotes on the ADF.