This was about the most encouraging news I saw today:
biz.yahoo.com
Wednesday March 29, 5:13 pm Eastern Time
CORRECTED - ECNs ramp up efforts to take on the NYSE
In NEW YORK story headlined, ``ECNs ramp up efforts to take on the NYSE,' pls. read in 7th graf ...
has generated sufficient liquidity in listed stocks ... instead of ... has generated sufficient liquidity in
Nasdaq stocks. (Corrects market.)
A corrected repetition follows.
By Elizabeth Smith
NEW YORK, March 29 (Reuters) - Alternative trading systems that have succeeded in the business of Nasdaq stock dealing are
eyeing the clubby world of the New York Stock Exchange, seeking to expand their reach in the U.S. equities sector.
A loss of market share to these electronic upstarts would spell trouble for the NYSE, the No. 1 U.S. stock market. Trading fees
constitute the exchange's second largest revenue source after company payments for listing shares on its exchange.
But these so-called electronic communications networks, or ECNs, face an uphill battle in their quest to trade NYSE issues, known
as ``listed stocks,' due to several regulatory and structural obstacles.
ECNs, sometimes no more than an office full of computers, automatically and electronically match stock orders. They are barred
from the intermarket trading systems and cannot tap the bids and offers in the nation's so-called Consolidated Quote System (CQS).
They must route listed stock orders to competitors or to the exchange through a NYSE member firm. In addition, their volume of
orders is tiny compared to the liquidity on the NYSE.
``The challenge for (the ECNs) of course is how do you do this,' said Steven Klein, vice president and director of global equity
trading for American Century Cos., a St.-Louis based mutual fund. ``THe NYSE has developed such a critical mass in the listed
business that you have to have good reason to challenge that existing pool of liquidity.'
The NYSE indeed holds an edge against its rivals in its massive liquidity -- the flow of buy and sell orders filtering through the
exchange each day. In order to compete against the exchange, ECNs desperately need some of that precious liquidity to attract
traders to their systems.
New York-based Instinet Corp., a unit of Reuters Group Plc (quote from Yahoo! UK & Ireland: RTR.L)(NasdaqNM:RTRSY - news),
has generated sufficient liquidity in listed stocks. Whether its younger competitors can do the same remains uncertain.
Island ECN, a unit of Datek Online, the No. 4 U.S. Internet brokerage, and Chicago-based Archipelago recently launched pilot
programs to trade listed stocks. Archipelago went a step further on March 14 and struck a deal with the Pacific Stock Exchange to
build an electronic stock exchange.
Instinet's daily volume in trading listed stocks averages about 25 million shares a day, versus 50 million shares in Nasdaq stocks.
Island estimates that it matches about 50,000 shares daily of listed stocks. Archipelago declined to quote its volume in listed stocks.
Although listed stocks can trade on any U.S. exchange, the 208-year-old NYSE has managed to keep about 85 percent of that
business on its own trading floor.
But one advantage ECNs possess is extended trading hours. Island, Instinet and Archipelago match stock orders for 12 hours a day,
versus 6.5 hours at the NYSE. As a result, online retail brokerages have come to rely on ECNs to process Nasdaq stock trades after
regular market hours.
ECNs first targeted Nasdaq stocks because they were barred from the national market system -- the web of U.S. exchanges
connected by an electronic linkage known as the Intermarket Trading System (ITS). In contrast, ECNs can process stock orders
through Nasdaq's vast computer systems as members of the National Association of Securities Dealers, Nasdaq's parent company.
Despite the handicap, the upstarts are forging ahead and lobbying Congress to break open the national market system, designed in
the late 1970s prior to the advent of ECNs.
Archipelago, backed by a consortium of high-profile financial companies, is expanding its share-matching business in listed stocks
this week from the dozen ``Big Board' names it now handles, Archipelago spokeswoman Sydney KampSchroeder said on Monday.
Archipelago and Island, two of the four original ECNs approved in January 1997 by the U.S. Securities and Exchange Commission,
are doing a nominal business in matching orders. Island focuses primarily on orders of America Online Inc. (NYSE:AOL - news),
Walt Disney Co. (NYSE:DIS - news) and International Business Machines Inc. (NYSE:IBM - news). Executives who run these
off-exchange networks, though, are convinced that they will make progress.
``There is enormous pent-up demand for an alternative to the listed market,' said Cameron Smith, general counsel at Island. ``It is all
about transparency and getting our quote reflected. The time to do this is now.' |
