Electronic Communiation Networks (ECNs)

¤ Archipelago (ARCA) provides a technologically advanced order entry and execution system for Nasdaq and listed stocks. Key features of the Archipelago system include: Anonymous access to all displayed Nasdaq market participants; creation of a national order book; proprietary execution algorithm; speed of execution; and technologically advanced systems. The ARCA Integrated Book gives investors the unique opportunity to view the entire Archipelago ECN book in addition to books made available by other ECNs. The ARCA Integrated Book does not necessarily represent the best bid or offer in the marketplace. This information is provided for informational purposes only and should not be used for making investment decisions. Archipelago believes its data is reliable but accuracy is not warranted or guaranteed.

¤ Instinet was founded in 1969, and is the world's largest agency brokerage firm and a wholly-owned subsidiary of Reuters Group PLC. We trade daily in over 40 global markets and are a member of 18 exchanges in North America, Europe, and Asia. Instinet seeks only to increase its clients' investment performance by providing them instant access to global liquidity, enhanced efficiency, and greater opportunities to reduce transaction costs. As a pure agency broker, Instinet offers clients neutrality, anonymity, transparency in trading, and research.

¤ Island is a computerized trading system that gives brokerages the power to electronically display and match NASDAQ stock orders for retail and institutional investors. Learn which brokerage firms in Island’s vast network deliver to the investor our faster, more efficient, and lower-cost services. View the only real-time book of limit orders as it updates. Island is the first to present this information for free to the general public.

Electronic Exchange Examples

Electronic Stock Exchange of Chile (ESEC) was formed by a group of banks and securities dealers that opted to create a new stock exchange that would not only ensure competition but also contribute to Chilean financial operations. The ESEC opened its doors to traders on November 2, 1989 with an electronic trading system. In July of 1992, GETS S.A. — today OpenGETS S.A. — was created. A subsidiary operation, OpenGETS is responsible for providing continuous improvement to our Electronic Trading System (SITREL) and for distributing the system among other stock exchanges throughout the region. The start-up company played a key role in the creation of electronic stock exchanges in Costa Rica, Ecuador, Uruguay and Venezuela. Trades are conducted during continuous trading hours for all kinds of instruments: stocks, fixed and variable rate securities, gold, silver and foreign currencies. Investors can track their trades from start to finish. We are an entirely electronic stock exchange and as such guarantee market transparency and security. We provide information instantly and fairly, thus ensuring equal opportunities for all brokers and investors.

GLOBEX® Alliance is the world's first electronic trading network for futures and option contracts. It will enable the ParisBourse^SBF SA, the CME and the Singapore International Monetary Exchange (SIMEX) to trade each others' contracts around the clock. To that end, SIMEX will adopt the NSC system, already in use on MATIF, MONEP, and the CME. In addition to broadening the range of products available to investors, GLOBEX® Alliance enables participants' clearinghouses to be interconnected, thus permitting cross margining on positions in the various markets. This arrangement will offer trading members a simple and cost-effective way to reduce capital requirements.

International Securities Exchange (ISE) is the US's first entirely electronic options market. Fully electronic exchanges are successfully operating around the world, providing a significantly higher level of efficiency and faster trading for their constituents than traditional floor-based exchanges. The ISE provides substantial savings and safeguards for its participants through greatly reduced operating/transaction costs and the application of market proven state-of-the-art software technologies and hardware. ISE's mission is to create and maintain an efficient, cost effective and liquid market for stock options through the introduction of a new market structure and automated trading systems. ISE’s combination of electronic trading with auction market principles benefits retail investors and professionals.

Tradepoint is a UK Recognised Investment Exchange and is designated a Regulated Market throughout Europe. Tradepoint is an electronic, order-driven Stock Exchange created for all professional securities traders within the European Economic Area, Switzerland, Hong Kong and the US to trade anonymously and efficiently. Orders are posted anonymously in the Tradepoint order book and are automatically matched in price/time priority. Orders and trades are published immediately on the Tradepoint ticker and some financial market information systems. You can see the most substantial price improvement opportunities relative to the LSE every day. A benefits table at the Tradepoint website shows yesterday's ten best bids and offers which are compared with the same stocks as traded on the London Stock Exchange (LSE). These are drawn from the hundreds of instances per day in which prices on the Tradepoint order book are better than those available at the same time on the LSE. By contrasting the actual price available on Tradepoint and the LSE spread, the price improvement can be substantial.

 

Why Stock Exchanges?

In an article entitled "Who Needs Stock Exchange? Not Investors." in The Wall Street Journal dated 8 May 2000 on page A42, James K. Glassman writes:

"Why have exchanges at all? Certainty not to help investors. Exchanges are at last being exposed as anachronisms, sustained by inertia and by the desire of incumbents, with help from regulators, to keep raking in monopoly rents. But the curtain is coming down.

"The Internet can instantly link buyers and sellers around the world, performing auctions with incredible speed and agility. This happens by way of electronic communications networks, or ECNs. In the U.S. the dominant ECNs — Instinet and Island — account for about 30% of the average daily transaction volume on the Nasdaq. An ECN is just a network, not an exchange. Island's orders are an open book. Just go to [their web site] and look up the actual orders — price and number of shares — for any Nasdaq stock.

Quoting U.S. SEC Chairman Arthur Levitt: "Now is the time to embrace a broader and deeper transparency, ... for all market participants to move toward open books across all markets."

"In the new world of electronic trading, markets will be open 24 hours a day, and competition will narrow transaction costs — not just on commissions, which have already been squeezed, but, more importantly, on bid-asked spreads. On a 1,000-share trade, 1/16 th of a point amounts to $166.67, or 20 times what some firms charge in commission. And what is this nonsense about 16ths anyway? What's wrong with plain old dollars and cents? Or thousandths of a cent?

"But as long as the politicians resist the urge to meddle, the technology-inspired race for transparency in the buying and selling of stocks will soon make investing less expensive, more informed and more democratic."

Music to our ears!

 

Electronic Trading versus Floor Trading

In a companion article entitled "Boolean Trades and Hurricane Bonds" Hal R. Varian writes: "Before the telegraph, the U.S. had some 50 stock exchanges; afterwards, it had essentially one. Before the Internet there were dozens of international financial markets. How many will survive by 2010? ... Everyone in the industry recognizes that there will be fewer stock markets in the future and that the survivors will be primarily electronic exchanges.

"In terms of providing liquidity, bigger markets are better. ... The plummeting costs of computation and communication will dramatically change the face of financial markets. For one thing, computers can offer more flexibility in execution. Take, for example, Boolean trades. An investor could place an order saying "I want to sell Microsoft at 75 if and only if I can buy IBM at 110 and buy Intel at 120." Computers can match such orders using algorithms that would be impossible for a floor trader to execute.

"As the communication costs continue to fall, we will see more exotic securities offered to the pubic. Any cash flow can be securitized, ... These cash flows can be standardized, packaged and offered to small investors, ... Any event can be hedged.

"As markets move online, physical locations becomes irrelevant. Where is the Paris-Frankfurt stock exchange located? ... Is it located wherever there is a meeting of minds in making a trade? On of mankind's oldest inventions, the market, is being irrevocably transformed by one of its newest, the computer.