OptiMark
The OptiMark Trading System had a difficult introduction on the Pacific Exchange. As the super "black box" for institutional traders went live, its performance was troubled by limited access to listed order flow. At the early stages, OptiMark was handling roughly one million shares daily. During the summer, that climbed up to three million shares, according to OptiMark's PR firm.
The PR firm credited the recent access to SuperDot for part of the improvement. Some trading pros think OptiMark may shelve plans to go live on Nasdaq this year, given the laundry list of projects on Nasdaq's calendar. The PR firm said OptiMark still hoped to go live this year. Approval for the OptiMark connection is still pending from the Securities and Exchange Commission. A spokesman for Nasdaq said the exchange is still committed to introducing OptiMark before yearend.
Closed Doors
Primex Trading NA, the electronic auction market set to debut next year, has closed its doors to new partners, having signed heavyweights Salomon Smith Barney and Morgan Stanley Dean Witter. "Never say never, but it is not our intention to seek out more investors," said Glen Shipway, Primex' president. "In fact, we had sufficient funds before they came aboard. What they offer is order flow, credibility and resources beyond money."
Formed in June by Bernard L. Madoff Investment Securities, Merrill Lynch, Goldman Sachs, and others, the partnership now includes four of the top five traders on the New York Stock Exchange. They also rank among the top ten Nasdaq market makers.
Primex plans to trade both listed and Nasdaq stocks. But the four NYSE members will be restricted to trading 19c-3 stocks, or those listed after April 26, 1979. That's unless Primex is able to work out a deal with a stock exchange or becomes one itself. It is pursuing both options. For Morgan Stanley, the Primex deal is its fourth investment in an electronic trading system. It has stakes in Archipelago, MarketXT and Britain's Tradepoint Financial Networks. Salomon owns a piece of MarketXT and STRIKE Technologies.
Super Regulator
Arthur Levitt, the chairman of the Securities and Exchange Commission, is floating the idea of a plan to amalgamate the self-regulatory operations of each stock exchange into a single super-regulatory body. Some significant changes could be ahead. The SEC itself is studying the possibility of combining some basic regulatory functions at each exchange. The proposal would be designed to eliminate overlap among regulatory bodies. Levitt is touting his ideas as the U.S. stock markets fragment and change at an unprecedented rate.
The SEC is concerned about a suitable regulatory model for the emerging new structures. Levitt says he favors linking all markets electronically. That could conceivably create the national market system envisaged by Congress in 1975.
New Link
Competition for buy-side traders' large block trades is heating up as a second floor broker completes its links to a major order routing network. Stone Securities, a large floor broker at the Boston Stock Exchange, connected to AutEx's TradeRoute, an execution network that enables the buyside to route orders electronically to the sellside. This summer, A.W. Bertsch, a floor broker at the New York Stock Exchange, became the first floor broker to join the TradeRoute network. Most sellside users of TradeRoute are full-service brokers, but interest by floor brokers is "definitely increasing," according to Sue McFadyen, a TradeRoute account executive.
Floor brokers face competition from alternative trading systems like POSIT and Instinet, as well as exchange systems like SuperDot. Proponents of the TradeRoute link claim advantages. "It's DOT with a conscience," one trader said. A SuperDot order must be broken up and is executed automatically. But an order routed to a two-dollar broker would be worked and might result in a better fill. Sources say the TradeRoute connection is usually used to move very large blocks in liquid names or any size order in illiquid stocks. AutEx's TradeRoute is popular with traders on the buyside because it is free. The sellside picks up their bills.
