Nasdaq To Quit ITS System In 2006

by Glen Shapiro, LawAndTax-News.com, New York

10 August 2005

The tech-heavy Nasdaq Stock Market announced on Monday that it would withdraw from the Intermarket Trading System (ITS) Plan in 2006 upon implementation of Regulation NMS, subject to approval by the Securities and Exchange Commission.

Reg NMS was adopted by the Securities and Exchange Commission in June and will take effect in two phases: Phase I will begin June 9, 2006 with a set of 250 stocks. After nine weeks, Phase II will begin with all national market system (NMS) stocks. The NMS amounts to a set of 'best execution' rules, and includes a contentious 'trade-through' rule.

The ITS plan has been used for 25 years to make sure that various stock markets could communicate their orders to one another, helping ensure that investors got fair prices. But with the regulatory changes from the SEC that will go into effect next year under Regulation NMS, the ITS plan has come under criticism for being out-of-date and no longer needed.

“Regulation NMS enables NASDAQ to select a more effective, high-speed private linkage over the older, less-flexible ITS Plan. This announcement represents a critical step forward in modernizing the trading of U.S. equities,” said Chris Concannon, Executive Vice President, NASDAQ Transaction Services.

“Today, the markets are witnessing a shift in trading activity away from the traditional exchange floors and towards automated trading alternatives like NASDAQ. Our withdrawal from the ITS plan reflects our strong belief that the trend of trading NYSE-listed stocks on electronic venues will continue to accelerate in 2005 and throughout 2006. By relying on our own private linkage, NASDAQ is positioning itself to capture additional liquidity in NYSE-listed securities,” Concannon, added.

Through its acquisition of BRUT LLC in 2004, NASDAQ implemented a high-speed, low-cost linkage system that interconnects other U.S. exchanges and is specifically designed to accommodate the trading activity of the future. After only four months of operation, NASDAQ’s new exchange listed product, which combines NASDAQ’s electronic matching facilities and the BRUT smart-routing technology, has grown to approximately 5% of NYSE-listed trading, growing NASDAQ’s overall executed and trade reported market share of NYSE-listed securities to 19%.

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