Is Nasdaq's New System Anticompetitive?

Nasdaq calls its proposed SuperMontage computer trading system a fairer, faster, cheaper and better way to trade Nasdaq securities. Its rivals, the electronic communications networks (ECN), have another name for it:

Monopoly.

ECNs are computerized trading systems that anonymously match buyers and sellers of stocks. And they have been stealing traffic, including orders from some major Wall Street brokerages. Often, prices quoted on these systems are better than those on the main Nasdaq system, and that, in turn, improves prices for all investors.

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In what has become a major battle in the industry, the ECNs and others complain that SuperMontage would allow Nasdaq's parent, the National Association of Securities Dealers, to create an inefficient, anticompetitive system in which orders would be forced to funnel through Nasdaq.

That would drain trading volume from the ECNs and other non-Nasdaq venues, stripping away the competitive benefits they've provided to Nasdaq trading in recent years, complains John Oddie, executive vice president of Instinet Corp.

As Cameron Smith, general counsel of Island ECN, told the Securities and Exchange Commission: "The NASD's SuperMontage proposal [raises] far-reaching competitive issues. The NASD intends to leverage its current government-granted monopoly to directly compete against what it perceives as potential competition from the ECNs."

The ECN side of the issue recently got a boost when House Commerce Committee Chairman Thomas J. Bliley, (R., Va.), wrote SEC Chairman Arthur Levitt demanding detailed information about SuperMontage.

Privately, Nasdaq executives dismiss the ECN criticism for the same reason the ECNs blast SuperMontage: self-interest.