The platform will let investors see five price levels of stocks, rather than the currently accessible best price. Beyond giving traders more information on which to base transaction decisions, Nasdaq hopes the move will make transactions faster and more efficient by consolidating trades through a single architecture.
SuperMontage has been ready to go live and has been used on test trades of more than 30 stocks since July. But the regulatory battle launched by competing electronic communications networks, or ECNs, has stymied the project. Getting the final nod from the SEC is a relief for Nasdaq execs. "From a technology and operations point of view, the project is fully implemented and complete," CIO Steve Randich says. Now it's just a question of whether or when the ECNs will link to the system.
The ECNs, which electronically match stock buyers and sellers, were originally opposed to SuperMontage, as they believed it would give Nasdaq a monopoly over order-executions and erode their execution market share in an already intensely competitive environment. To resolve that issue, the SEC a year ago required that Nasdaq build an alternative display facility managed by its parent company (the National Association of Securities Dealers). It also mandated that the Nasdaq exchange be spun off as a for-profit company. But resistance from the ECNs to SuperMontage has kept the project from going live.
The SEC put an end to the stalling by requiring ECNs to either link to SuperMontage or declare that they will use the alternative display facility as their primary trading facility within the next four days. Should all ECNs link to the new platform, it could go live as soon as Sept. 17. If the ECNs decide to use the alternative display facility, as their primary platform, they will get 45 days to link to and test their trading capabilities, pushing the opening of SuperMontage to Oct. 11. Yet that's not a terrible consequence, says Sang Lee, an analyst at Celent Communications. "The biggest win for Nasdaq is that the SEC has told the ECNs directly that they need to make up their minds," he says. "Ultimately, the decision was a win-win for the Nasdaq because they finally got through the delays, got the approval, and have an official launch date."
Already, Bloomberg ECN has declared it will use the alternative display facility, so Randich says the October date is more realistic. "We're happy even with an Oct. 11 rollout," he says. "Obviously, we'd prefer to start it in mid-September, but we're OK if we have to wait."
While each day that SuperMontage idles takes away from projected revenue gains for Nasdaq, Lee says that the exchange should be able make up those losses relatively quickly. As for the rest of the ECNs, they have four days to come up with a final decision. While some of the larger ones, such as Island ECN, have expressed their intentions to join SuperMontage, they may still use take advantage of this final opportunity to push back the launch and possibly resort to using the alternative display facility. But for the smaller competitors, there's not much choice but to join the big guys. Says Lee, "You can't justify having the best system if you're not linked to the largest pool of liquidity."