With every regional stock exchange gearing up for Reg NMS, the Chicago Stock Exchange (CHX) is looking at potential partnerships with technology companies and brokers that offer smart-order routing, according to Dave Herron, the exchange's CEO. Under the trade-through rule within Reg NMS, regional stock exchanges will be required to route orders to the market displaying the best price - if it cannot match the price internally.

"Part of our model - and it's part of Reg NMS - is that you offer outbound order-routing capability," says Herron. In the past, the exchange relied on specialists to do that routing through its agent capacity, he explains. In the future, the exchange will look more like its competitors, Herron says, citing Archipelago as an example.

Though Herron declines to name the technology firms with which the CHX is in discussions, he says, "Some are firms like Lava Trading, like Royal Blue; and some are affiliated with broker-dealers, and some are not."

The technology partners "would prefer to take an ownership stake as opposed to a strict vendor relationship," adds Herron. They then would benefit if and when the CHX were to go public, he explains.

Meanwhile, the CHX is adopting a new hybrid trading model - approved by its board of governors June 17 - that, according to Herron, is more ECN-like but preserves the exchange's price-discovery process, while reducing the role of specialists. "We used to rely on our specialist community to supply the liquidity and be the other side of the trade," he says. Specialists - soon to be called lead market makers - no longer will have responsibility for the book of orders, Herron notes. "The order book will look more like an ECN," he says.

With the e-book, the CHX can list more stocks without assigning specialists to them, according to a CHX spokesman. The specialists will have the option to interact with order flow, but they won't have a stringent obligation, he explains.