The order handling rules were designed to protect the investing public's interests. The structure proposed in Supermontage divides the order book into separate classes and establishes price over time in priority queues and hence threatens the ability of new entrants to compete. Under the Supermontage algorithm, the market makers order goes to the top of the order book. If this rule were allowed as proposed, market makers would have no incentive to improve upon the NBBO before executing customer orders. This tendency will be further exacerbated by market makers who maintain the right to gain immediate priority at the same price on Supermontage if that price is posted by an ECN with an explicit pricing model.
Market makers receive an economic incentive to quote wide spreads under the current proposal.
They need only improve quotes when a competing order from an ECN or UTP exchange arrives at a better price. If ECN access fees are rolled up as proposed in the amendments, spreads will widen and those participants internalizing order flow will see their margins increase due to wider spreads. Finally, Supermontage would allow market makers to trade for their own accounts ahead of the public's orders currently entered by an ECN or by another market maker. This fee structure should be made public prior to approval of the Supermontage proposal. Market Structure that Makes Sense for Institutional Investors American Century believes any valid market reform should center on strict price and time priority within a market center.