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SuperMontage: ECNs, Nasdaq Make Their Cases in D.C.

Sources confirm that a number of ECNs and several high-ranking members of Nasdaq met with SEC Chairman Levitt and Phil Gramm (R-Texas) to present arguments for and against Nasdaq's proposed SuperMontage.

Officials from a number of ECNs, along with some high-ranking members of Nasdaq, met recently with Chairman of the SEC Arthur Levitt and Chairman of the Senate Banking Committee Phil Gramm (R-Texas) to present arguments for and against Nasdaq's proposed SuperMontage, which would incorporate into Nasdaq the best ECN bid and offer on all Nasdaq stocks.

Opponents feel a SuperMontage would make it less likely for buy- and sell-side firms to route their orders into ECNs and thus place Nasdaq in a monopolistic position. Proponents argue that a central order limit book (CLOB) is the only way to repair market fragmentation which they say can isolate orders and prevent investors from getting the best execution.

A spokesperson for the Bloomberg Tradebook ECN says the meetings were held just in the nick of time. "We met with Phil Gramm of the Senate Finance Committee, and then the same afternoon, we met with Arthur Levitt over at the SEC. The gist of it was we don't think this is going to work in its current form. Then there was a follow-up meeting with Gramm and Levitt, and the gist of that was Gramm saying, 'Arthur, take a good look at this before you pull the trigger on it.' In light of recent events and the fact that we have been requested to submit points for consideration, I think this was literally a three-point shot from half court with no time left, and I think we pulled it off," he says.

The Bloomberg Tradebook spokesperson says that Tradebook-along with ECNs Instinet, Island and Archipelago-have formed "The Coalition for Fair Competition" to fight the SuperMontage proposal. The coalition also made its anti-SuperMontage argument in a full-page ad in the August 9 edition of The Wall Street Journal. A spokesperson for Archipelago says that, although they were involved in the discussions, they are not part of the coalition.

A Nasdaq official confirmed that a meeting did take place on July 28, at which members from Bloomberg Tradebook and Instinet met with John Malitzis, from Nasdaq's office of the general counsel, Richard Ketchum, president of Nasdaq, and another Nasdaq official, as well as with members of the SEC. Following the meeting, the ECNs were told by the SEC to submit their arguments against SuperMontage in a letter by the following Monday, July 31. According to the Nasdaq official, the letter was not submitted until Wednesday, August 2. As a response to the letter, Nasdaq filed amendment seven to the SuperMontage proposal on August 7 or 8. "Now it's in the hands of the SEC," says the Nasdaq official, who adds that a decision could come at any time.

A spokesperson for Senator Gramm would not confirm that the meeting took place. "The senator has had sessions on this with people in the industry and the SEC, but has not taken a position on it one way or the other," she said.

The SEC would not confirm that a meeting took place with Chairman Levitt. "As far as commenting on meetings with people from the private sector, we don't confirm or deny whether people are coming to talk with staff or commissioners or the chairman, let alone senators," says a spokesperson.

The Bloomberg Tradebook spokesperson adds, "From our standpoint, the coalition is claiming a victory, in the sense that we've been able to postpone the decision, and it's under serious review."

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