Nasdaq Is Gearing up for Launch of Listed Trading on SuperMontage

The Nasdaq Stock Market will roll out a pilot for trading exchange-listed stocks on SuperMontage Monday, in a move toward a single-platform strategy designed to compete with the New York Stock Exchange.

Nasdaq received approval from the Securities and Exchange Commission to begin the pilot, which applies to 27 NYSE-listed and American Stock Exchange-listed securities. The pilot was originally scheduled for March 1, but was rescheduled.. Trading in remaining listed stocks will start on March 15.

Currently, the Nasdaq Intermarket has a proprietary system, the Computer Assisted Execution System, known as CAES, for trading exchange-listed stocks.

The migration off CAES onto SuperMontage will position Nasdaq to take advantage of the trend sweeping the large, integrated brokerage houses, known as sector-based trading, says Christopher Concannon, senior vice president, Nasdaq Transaction Services.

"Essentially, CAES disappears and is replaced by SuperMontage, so we have SuperMontage technology supporting our Nasdaq and our listed trading," says Concannon. Currently, Nasdaq's Intermarket's market share in listed stocks ranges from 13 to 15 percent, says Concannon. He says the single-platform strategy combined with offering connectivity via the Financial Information Exchange (FIX) protocol will make it easier for firms to connect with SuperMontage.

Firms that trade Nasdaq stocks on SuperMontage will have a "much easier integration for listed stocks," he says. It will also help Nasdaq keep its costs for developers and connectivity down. "Maintaining a single platform is much cheaper than multiple platforms," he says.

In a report titled "Nasdaq Fights Back," Financial Insights Analyst Damon Kovelsky, endorses the dual over-the-counter (OTC) and listed-stock trading strategy. "If Nasdaq can provide an entry point for trading all stocks in an industry sector, such as telecom or industrials, more traders will go there. Since there would be only one screen and one desk, it would be faster and potentially cheaper than going to several execution venues," Kovelsy writes.

But will the transition to SuperMontage benefit market participants?

Michael Richter, chief executive officer of Lime Brokerage, a direct-access agency brokerage-firm, that enters orders on behalf of its institutional clients, supports the switch. "We are currently finding CAES is a very attractive mechanism for trading listed and so we, as an agency-based order entry firm are looking forward to trading listed on SuperMontage."

The key reason Richter is looking forward to the switch is that he believes his clients will be able to post limit orders in listed stocks on SuperMontage anonymously. "Our customers can't post limit orders in the current roll out (via CAES) and so we're hopeful that they will implement SIZE which would allow our customers to post limit orders into SuperMontage for these listed securities," Richter explains. SIZE is Nasdaq's anonymity feature, which it introduced to SuperMontage in October of 2003, along with other changes such as FIX access and sophisticated order types like discretion. For instance, instead of a brokerage firm using the Market Participant Identifier or MPID, which reveals its name, its bids and offers are shown as SIZE.

Aside from technology issues, Richter says Nasdaq's main challenge in gaining market share in listed securities will be structural and liquidity issues. "Overall they're trading listed (stocks) in the same way as any of the ECNs (electronic communications networks) trading listed. And the difficulty is both the trade-through rule and having sufficient liquidity on their respective books," says Lime's CEO. 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