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Regulation and Compliance > Federal Regulation > SEC

Instinet's Filing Means Another Delay for SuperMon

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WASHINGTON (–The Securities and Exchange Commission has effectively delayed the launch of Nasdaq’s SuperMontage until the middle of October, in order to avoid allowing Nasdaq an unfair competitive advantage over the electronic communications networks.

It was in January 2001 that the SEC approved Nasdaq’s proposal for SuperMontage; a new order display facility that would give market participants greater information, faster ways to trade, and a choice in how prices are accessed. But several market participants objected wondering if their participation in SuperMontage might in effect become mandatory, and they would thereby be required to subsidize a competitor. (The SEC conditioned its approval upon the implementation of an alternative display facility, or ADF. The ADF is the no-nonsense system, whereas the SuperMontage is the bells-and-whistles variant.)

Earlier this year, Nasdaq had thought it would launch SuperMontage on July 29. Some speculated that the competitive threat it would pose stimulated Instinet and Island to announce their merger plans in advance of that date.

As the July date approached, though, the SEC forced a delay, announcing that it would have to consider the “extent to which the preconditions” of the new system “have been satisfied.” It held an open meeting on this point Aug. 12, and announced a rule change Aug. 29.

“Certain market participants have indicated that they are firmly committed to using the ADF as their order collection and display facility but require further time to adapt and test their systems to participate through the ADF,” the SEC said. “To prevent any unfairness, the Commission believes that SuperMontage should begin operation on Oct. 11, 2002, assuming that within five business days from the entry of this order, one or more market participants certifies, under oath, that such entity at the time of the oath intends to use ADF as its primary order collection and display facility …. In the absence of any such certification, SuperMontage shall become effective immediately after the fifth business day of the entry of this order.”

The SEC also observed that market participants need not use either SuperMontage or ADF. “For instance, beginning the week of Aug. 5, 2002, the Cincinnati Stock Exchange has provided Island ECN … with the ability to represent orders in certain Nasdaq securities in the national best bid or offer.”

As the SEC’s deadline arrived, Instinet certified that it would use ADF. This had the effect of delaying the operation of SuperMontage until Oct. 11. Furthermore, since Nasdaq does not want to roll out its new system on a Friday, the delay is actually until Oct. 14.

The SEC’s statement Friday said that it had received “one or more” certifications, so it is unclear whether Instinet was the only ECN to indicate it will use ADF. The SEC’s spokesman, John Heine, declined to give any further information on that point this week.


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