The Nasdaq Stock Market is to begin operation of the Primex Auction System, a hybrid auction/dealer trading system for all US equities, on 17 December, 2001, five months later than initially scheduled.
The new system - which provides an opportunity for retail brokers internalising order flow to seek out better prices - will be offered as an optional service to all Nasdaq participants. Initally scheduled for launch in June, the roll-out of the system has suffered successive knock-backs, most recently in August when further integration testing was deemed necessary.
Once live, marketable orders of all sizes may be routed to the system, where they are exposed to an electronically linked crowd of competing broker/dealers, proprietary traders, institutions, and electronic communications networks (ECNs). The auction is conducted continuously at and inside the National Best Bid and Offer (NBBO). Most executions in the system will occur instantaneously.
Nasdaq is planning to phase in the securities eligible to trade on the system over the first few months of operation. For the first three weeks, participants will be able to trade the 30 stocks in the Dow Jones Industrial Average - including Nasdaq bellwethers Microsoft and Intel. On 7 January, the Exchange will expand trading to stocks in the Standard & Poor's 100 Index. On 22 January, the list of eligible securities will widen again to include stocks in the Nasdaq 100 Index.
This limited list of securities will remain in effect through 31 March 2002, when the initial start-up phase is scheduled to end. Nasdaq says it will waive all fees for the initial start-up phase.
So far, 60 broker/dealers have registered as participants. Some of these firms will access the system directly, while others will use connections established by order-routing and trade-management software vendors. These include Sungard Trading Systems/Brass, Nasdaq Tools, and Lava Trading.
Gene Lopez, senior vice president, Nasdaq, says: "We are expecting a very gradual build in usage, because of the limited number of issues included in the roll-out as well as the time needed for order management and order routing vendors to integrate their systems."
The system was developed by Primex Trading, a partnership formed by securities industry brokerage firms and investment banks including Merrill Lynch, Salomon Smith Barney, Goldman Sachs, Morgan Stanley and Bernard L. Madoff Investment Securities.