To mark this expansion, and Nasdaq's new technology that makes it possible, Nasdaq is renaming its Third Market, Nasdaq InterMarketSM.
Under separate agreements, Bloomberg Tradebook, BRUT, and MarketXT will post quotes and execute trades within Nasdaq InterMarket, which expects to announce further similar agreements with other significant market participants in the near future.
At a news conference held here at the Nasdaq MarketSite, representatives from the three ECNs and Market Maker participants Knight Trading Group, Inc. and Bernard Madoff Securities joined National Association of Securities Dealers (NASD) and Nasdaq Stock Market, Inc. Chairman and CEO, Frank Zarb; NASD President Richard Ketchum; and Nasdaq InterMarket Managing Director, Dean Furbush, in announcing their participation in Nasdaq InterMarket.
"The world of trading stocks is changing rapidly and that change is increasingly coming to exchange-listed securities," Mr. Zarb said. "With Market Makers and ECNs bringing us order flow in listed stocks, investors will see trades in exchange-listed stocks happen faster and cheaper. Technology is the investor's friend and Nasdaq InterMarket is well positioned to lead the way."
"Not only will ECNs be able to match their customer's orders internally and with other Nasdaq InterMarket participants within our open-architecture, electronic arena," Mr. Ketchum said, "but, for the first time ever, ECNs will be able to post their customer's orders on the nationwide consolidated quote system and they will be able to trade through the nationwide consolidated trade system for exchange-listed stocks."
"The Securities and Exchange Commission (SEC) is intent on opening up competition in securities trading to better benefit investors," said Mr. Furbush, who heads Nasdaq InterMarket. "This is precisely what Nasdaq InterMarket promotes in its ability to reliably link buyers and sellers in an electronic marketplace for trading exchange-listed stocks."
According to Mr. Furbush, trades on Nasdaq InterMarket are guided by the principles of best execution with the ability to compete on all dimensions of market quality. "Customers can choose to send orders directly to a Market Maker or ECN on the basis of desired execution characteristics, including stock price, speed of execution, fill rate, commission cost or a combination of these characteristics," he said.
"Our linkage to Nasdaq InterMarket will provide BLP Tradebook clients with electronic access to CQS and ITS for trading exchange-listed securities," said Kim Bang, President of Bloomberg Tradebook. "Our clients look forward to participating on an electronic network that represents an attractive alternative to the NYSE DOT.
"Nasdaq InterMarket expands BRUT's access to NYSE and other exchange-listed stocks, said Richard Schenkman, BRUT Chairman and CEO. "Nasdaq InterMarket adds significantly to BRUT's capability to serve it customers efficiently and well."
Nasdaq InterMarket conveniently links with market participants through a range of interfaces including proprietary systems (via an application programming device or API), Nasdaq technology such as Nasdaq Workstation II (NWII™) and the Intermarket Trading System (ITS).
"We strongly support this initiative and feel that this is the next logical step in the trading of exchange-listed securities," said Steven Silberstein, President and COO of MarketXT, Inc. "We are pleased to be an initial participant in this program and provide our clients with greater access to these securities."
"We believe that Nasdaq InterMarket is moving in the right direction by initiating this program which will enhance the price discovery and access to order flow for exchange-listed securities," said Eugene A. Choe, Founder and Executive Vice President of MarketXT, Inc.
"Today, about one out of every nine trades in a NYSE-listed security is executed in our market," Mr. Furbush said. "We expect this statistic to grow as Market Makers and, now, ECNs, establish links to participate in one of the lowest cost, fastest and fairest electronic markets available today."
Much of Nasdaq InterMarket's price and speed advantage stems from the fact that Nasdaq InterMarket shares many technology resources with The Nasdaq Stock Market for processing and broadcasting quotes, and processing and routing orders and executions.
Moreover, Mr. Furbush added, "NASD Regulation, Inc., which regulates trading in Nasdaq-listed securities, uses the same technology and professional resources to regulate exchange-listed trading in Nasdaq InterMarket."
Market Makers, led by Knight Trading Group and Madoff Securities, both of which are long-time Nasdaq Third Market participants, provide online investors with low-cost, high-speed transactions by executing trades through the Nasdaq InterMarket.
"Nasdaq's InterMarket works very well for us and our customers," said Mark Madoff, Director of Listed Trading for Madoff Securities. "We benefit from its speed, reliability, and low cost structure."
"Knight fully supports Nasdaq's efforts to promote the continued expansion of its dealer-based market for trading exchange-listed equity securities," said Robert M. Lazarowitz, Executive Vice President of Knight Trading Group, Inc. and Chief Operating Officer of Knight Capital Markets, Knight's Nasdaq InterMarket trading subsidiary.
"A multi-participant, multi-platform marketplace in which dealers and ECNs can fully interact with each other in the consolidated quote will provide more opportunities for investors to receive the greatest available liquidity at the best possible price," Mr. Lazarowitz added. "Nasdaq's announcement today lends credence to our belief that competitive market forces will continue to benefit investors by providing them with innovative services and superior order execution quality."
Nasdaq InterMarket is currently conducting discussions with numerous other potential participants, including Instinet Corporation, a wholly-owned subsidiary of Reuters Group PLC, and REDIBook ECN LLC.
"Recently, regulatory changes approved by the SEC enable Nasdaq InterMarket to broaden its offering for trading exchange-listed securities," Mr. Furbush said.
The SEC supported Nasdaq InterMarket in making technological changes to the Computer Assisted Execution SystemSM (CAESSM) that enable it to deliver orders to participants for an automated response rather than automatically executing the orders.
This order-delivery mechanism effectively eliminates the potential for dual liability (the simultaneous execution of orders against a participant's quote through both Nasdaq InterMarket and the participant's own internal system), which could have occurred when only automatic execution was available.
The SEC earlier this year granted ECNs the ability to make a market in exchange-listed stocks and, more recently, the NYSE, at the SEC's urging, rescinded Rule 390, an NYSE regulation that effectively prevented a substantial portion of the most attractive NYSE issues from being traded anywhere but on the NYSE's floor by NYSE members.
Bloomberg Tradebook, LLC, a wholly-owned subsidiary of Bloomberg L.P., is an electronic agency broker of equity securities through the Tradebook platform, which is operated in compliance with the SEC's newly-implemented Regulation ATS. Tradebook is a compliant ECN with full integration into the US National Market System for Nasdaq securities. Tradebook's leadership position as a consolidator of liquidity in the electronic matching arena, coupled with its proven suite of trading and analytical functionality allows Tradebook to serve as a tool for institutional investors seeking best execution. An innovator focusing on new opportunities offered by regulatory and technological change, the number of shares traded on Tradebook has more than tripled in volume since the beginning of the fourth quarter of 1998. Tradebook currently averages more than 92 million shares traded daily. Bloomberg Tradebook's services in U.S. equity securities are offered in association with B-Trade Services LLC and BNY ESI & Co., Inc., each a wholly-owned subsidiary of The Bank of New York. B-Trade Services is a single-purpose entity handling sales trading, operations and trade execution of U.S. equities for Tradebook. BNY ESI & Co. acts as clearing broker for the Tradebook system in U.S. equity securities.
The BRUT ECN, headquartered in New York City, is the third-largest and fastest-growing electronic communications network (ECN). The BRUT ECN trades approximately 50 million shares per day and is roughly 3% of The Nasdaq trading volume. The BRUT ECN was formed in 1998 and operates on the BRASS - Brokerage Real-Time Application Support System. BRUT's equity partners are: Banc of America Securities, LLC; Bear Stearns & Co., Inc.; Bridge Trading Company; Cantor Fitzgerald & Co.; Chase H & Q, CIBC World Markets Corp.; Donaldson, Lufkin & Jenrette, Inc.; E*Capital Corporation; First Southwest Company; Fleet Boston Robertson Stephens, Inc.; The Goldman Sachs Group, Inc.; Herzog, Heine, Geduld, Inc.; Hull and Associates, LLC; ING Barings, LLC; J.P. Morgan Securities, Inc.; John G. Kinnard & Co., Inc.; JW Genesis Financial Corp.; Knight Trading Group, Inc.; Lehman Brothers, Inc.; Merrill Lynch, Pierce, Fenner & Smith Incorporated; Morgan Stanley Dean Witter; Nikko Securities Company International; Paine Webber, Inc.; Prudential Securities, Inc.; Punk, Ziegel & Company; Salomon Smith Barney, Inc.; SunGard Data Systems; Susquehanna Partners and TIR (US) Holdings, Inc. For more information visit The BRUT ECN website at www.ebrut.com.
MarketXT, Inc., member NASD and SIPC, is based in New York and privately held. MarketXT, Inc. has served as a leader in fostering convenience and opportunities for investors. The company's electronic communications network (ECN) is the first extended-hours trading platform specifically designed for individual investors, offering tools and services that were previously available only to institutions. MarketXT is supported by major brokerage firms with investors including Salomon Smith Barney, Morgan Stanley Dean Witter & Co., Herzog Heine Geduld, Bernard L. Madoff Investment Securities and E.M. Warburg Pincus & Co. For more information, visit the MarketXT Web site at www.marketxt.com.
Bernard L. Madoff Investment Securities (Nasdaq: MADF) is a leading international market maker. The firm has been providing quality executions for broker-dealers, banks, and financial institutions since its inception in 1960. With $300 million in firm capital, Madoff currently ranks among the top one percent of U.S. Securities firms. Madoff offers sophisticated proprietary automation and unparalleled customer service with an enhanced execution that is virtually unmatched in our industry. Madoff Securities' customers include scores of leading securities firms and banks from across the United States and around the world. The firm is not only a leading market-maker in all of the S&P 500 stocks as well as over 200 NASDAQ issues, it is also one of the largest market-makers in U.S. convertible bonds, preferred stocks, warrants, units, and rights. The firm is known for its fine pricing as well as its ability to execute most orders in seconds. For more information, visit the Madoff Securities website at www.madoff.com.
Knight Trading Group, Inc. (Nasdaq: NITE), headquartered in Jersey City, NJ, is a market center that seeks to empower investors by providing them with opportunities for price improvement, immediacy and enhanced liquidity in their OTC and listed securities transactions. It has the power to commit capital for market orders, and it also maintains the largest limit order book in the OTC market. Knight traded 81 billion shares in 1999, a volume behind only those posted by Nasdaq and the New York Stock Exchange (NYSE). It also is one of the largest execution destinations for securities transactions placed via the Internet. Knight is a charter member of Fortune magazine's "e-50 Stock Index," an elite collection of companies that are shaping the new Internet-based economy. In addition, Knight, which has been in operations for fewer than five years, is ranked by Forbes magazine as one of the 500 most profitable public companies in the U.S. Ultimately, Knight plans to enable the global trading village to trade all types of equity securities and options at anytime, from anywhere in the world. More information about Knight can be obtained at www.knighttradinggroup.com, or at www.knight-sec.com.
Nasdaq InterMarket is a marketplace comprised of Nasdaq market participants that quote and trade exchange-listed securities using their proprietary systems, Nasdaq technology, and the Intermarket Trading System (ITS). In Nasdaq InterMarket, buyers and sellers are linked without the limitation of a single geographic location or the restriction of channeling all trades through a single floor specialist. Instead, customer orders flow to the market participant offering the best execution at the lowest cost.
Through the Computer Assisted Execution System (CAES), participants are linked with each other and with the Intermarket Trading System (ITS), enabling them to enter and execute trades in all exchange-listed securities via the Nasdaq Workstation II® (NWIITM) or an application programming interface (API). Through ITS, participants are linked to each of the national exchanges and can gain access to posted exchange quotations in a situation where the exchange quote improves the best consolidated quotation within CAES. For more on the Nasdaq InterMarket, visit www.intermarket.nasdaqtrader.com.
The Nasdaq Stock Market lists nearly 5,000 companies, has a larger dollar volume, and trades more shares per day than any other U.S. market. Nasdaq® is a subsidiary of the National Association of Securities Dealers, Inc. (NASD®), the largest securities-industry, self-regulatory organization in the United States. For more information about Nasdaq, visit the Nasdaq Web site at www.nasdaq.com or the Nasdaq NewsroomSM at www.nasdaqnews.com.
