Soft Dollars
A Securities and Exchange Commission proposal requiring investment advisers to electronically file more information in their soft dollar arrangements, is raising objections. Investment advisers were expected to start electronically filing data this month. The web-based system, operated by the National Association of Securities Dealers, would be more accessible by the general public than the traditional paper-based arrangement. The sticking point is over whether the SEC will require advisers to file information that some advisers think will hurt their business. Until that is resolved, the old filing requirements are in force.
The Alliance In Support of Independent Research, a soft dollar trade group in Washington, objects, for instance, to a disclosure requirement in commission recapture arrangements. "In effect, the new disclosure appears to require that the investment adviser offer commission recapture to its client base if any client has instructed the adviser to direct trades." The group adds that the requirement, "may have the unintended consequence of discouraging advisory clients from participating in such arrangements."
Trade Through
The Island ECN is lobbying Washington for a new rule that would permit broker dealers to trade through orders at the inside – as long as they disclose the practice to their customers, according to general counsel Cameron Smith. The effort follows a request made by the Securities and Exchange Commission in August to market participants to consider such a trade-through disclosure rule. It has already proposed one for the options market.
The SEC's thinking contrasts sharply with a Securities Industry Association proposal calling for a market-wide ban on trade-throughs. The listed market already requires broker dealers to take out orders with the best bid or offer before filling any inferior-priced orders of their own. Nasdaq does not. Island, which has petitioned the SEC to become a stock exchange, refuses to join other ECNs in the Nasdaq InterMarket because it would mean turning away customers seeking fast fills at prices inferior to those found at slower-moving market centers.
Supermontage
Nasdaq's supermontage proposal got cheers from the sellside, but jeers from the buyside at a conference in New York. Scott Saber, an executive director at UBS Warburg, praised the addition of a hidden reserve facility to the quotes in the montage. He told attendees at the conference, on buyside and sellside trade communications, that it will make it possible for traders sweeping the Street to fill their entire order at the inside price (rather than executing lesser amounts at inferior prices.)
Saber noted, however, the feature would enable a dealer to "hold" the market, making it difficult for others to make it to the top of the queue. Priority in the montage came under fire from Harold Bradley, an ex-head trader, former portfolio manager and now president of American Century Ventures at mutual fund giant American Century. He complained that supermontage would favor market makers over limit order traders using access fee-charging ECNs. "There's no price-time priority," Bradley said. Bradley is annoyed that orders at the inside posted to ECNs which charge access fees, will be subordinate in supermontage to similarly-priced quotes from market makers. That could make it difficult for limit order traders to get filled.
OptiMark
Nasdaq is reportedly interested in acquiring some of OptiMark's software development expertise to help it build supermontage. That's was likely made easier with of OptiMark's decision to cease its stock trading operations on Nasdaq and the Pacific Exchange. Unable to arrange a cash infusion and plagued for months by negligible volume, the vendor of the buy-side alternative trading system was shutting down gradually over a number of days with plans to layoff 110 employees.
OptiMark began life in 1998 with capital of $150 million and an aggressive marketing campaign. But it was deemed too difficult to use by buy-side traders. The company will continue to operate as a trading software development firm run by its former chief technology officer, Robert Warshow, and newcomer, David Johnson. OptiMark's current chief executive, Phillip Riese, will step down.
