Nasdaq launches revised order system

As The Nasdaq Stock Market Inc. prepared last week for today's launch of its revised version of the Small Order Execution System (SOES), analysts said problems revealed in trial runs are making electronic communications network (ECN) companies hesitant to use the expanded messaging network.

Nasdaq shut down for an hour June 29, after a technical snafu led to a slowdown of its SOES and SelectNet quote-update networks.

It's that kind of mistake that has sparked skepticism over the new SuperSOES service, according to Damon Kovelsky, an analyst at Meridien Research Inc. in Newton, Mass. Declining to comment on specifics, Kovelsky said Nasdaq's test of its SuperSOES network has revealed some "serious problems . . . all of a technological nature."

In a statement last week, Washington-based Nasdaq Stock Market Inc. said, "Currently, all systems seem prepared, and the launch date is firm. However, Nasdaq will not implement SuperSOES if we are not confident our system is ready. We are retaining the legacy system, so it will be possible to revert to the old platform."

SuperSOES, which will operate during normal market hours only, will increase the number of trades in one transaction a thousandfold, from the current 999 to 999,999. SelectNet is currently used for all large trade orders.

The first pilot of the SuperSOES system launched Friday and will include 20 securities -- 18 Nasdaq National Market securities and two test stocks. The full implementation of SuperSOES will begin July 30 and will include all Nasdaq National Market securities.

The hope, said analysts, is that the new communications network will eventually make SelectNet obsolete. That system is clunky and slow and has been troubled by outages, they said. "It's the Nasdaq platform ECNs love to hate," said Kovelsky. ECNs are private trading networks that let people conduct stock transactions without going through Nasdaq market makers such as Goldman, Sachs & Co. in New York.

But the ECN companies seem skeptical that SuperSOES is the answer.

Margaret Nagle, a spokeswoman at Archipelago Holdings LLC, an ECN in Chicago, said the firm won't use SuperSOES as its automatic order-execution engine in the immediate future because Archipelago already has its own.

Nagle said Archipelago has tested the SuperSOES system with Nasdaq over the past few weekends and hasn't seen any problems. "But things operate differently in test environments than when you're live," she said. "We don't know yet how quickly quotes will be updated in this new system. We wouldn't want to give stale quotes."

Andrew Goldman, an executive vice president at The Island ECN Inc. in New York, welcomed the launch of SuperSOES as a positive step. But he stopped short of saying whether Island would ever consider the network as its primary automatic order-execution engine.

In fact, Nasdaq said in its statement that so far, no ECN has indicated that it will be a full SuperSOES participant willing to accept automatic order executions against its quotes.

Meanwhile, Nasdaq spokesman Scott Peterson said the June 29 outage won't affect the launch of SuperSOES.

Software problems have plagued the stock exchange's SOES. Last year, trading had to be halted at least five times for up to 11 minutes because of slowdowns in the network, which is provided by WorldCom Inc. "We have resolved this issue and will continue to work with Nasdaq to take all steps necessary to ensure it does not recur," WorldCom CEO and President Bernard J. Ebbers said in a statement.

A Nasdaq official said the most recent shutdown was caused by a WorldCom technician who entered a command into the live network instead of the test network on which he was running a program.