Archipelago Exchange
Archipelago, the nation’s newest stock exchange, will shake up equity trading in more ways than one.
The new exchange, which is awaiting SEC approval and anticipating a spring launch, will provide an all-electronic agency arena for equities now trading on the New York Stock Exchange or Nasdaq. Second, it will be the first exchange to run entirely on Windows 2000.
The new exchange grew out of Archipelago’s acquisition of the Pacific Stock Exchange. Currently, as an electronic communications network (ECN), Archipelago handles all its data feeds and trades, encompassing upwards of 68 million shares a day, on Windows NT and Windows 2000.
"We are running Compaqs with Windows 2000," said Stuart Townsend, president of Townsend Analytics and chief technology officer of Archipelago. "This allows us to expand incrementally. We don’t have to buy large blocks of hardware and make a commitment to a certain technology level. Instead, we are able to grow the business by adding more boxes, and as we add more boxes, we can always add the latest technology, and migrate the older technology to peripheral activities. The result is that we continuously improve the quality of the hardware in our main platforms, which is much harder to do on other systems because the unit costs are much higher."
Archipelago has about 300 servers on its server farm, and Townsend Analytics runs another 700 or 800. Most of the price servers are the thin dual-processor Compaq 933 MHz 1U computers.
"They are very fast, and that is the optimal machine today," explained Townsend. "Dual processors are much faster than quads right now, because it takes long to develop the quad chip set. We are always looking for the most efficient hardware, and since we buy in small increments and the operating system stays the same across single-, dual-, and quad-processor machines, we can select the best platform for our needs. Today it’s Compaq for price distribution, but maybe Gateway will come out with 1U quads before Compaq does. Then we can buy Gateway, since the operating system is the same."
But as advanced as Archipelago’s stock exchange technology may be, it probably will make less of an impact on the market than Archipelago’s trading method.
"The main impact of Archipelago Exchange," explained Townsend, "is that individual and institutional investors will be able to trade listed securities electronically – without an intermediary or specialist. They will trade alongside Nasdaq stocks under the same rule set. Today, when you trade on the NYSE, your order often interacts with a specialist, not directly with the rest of the market. And if you go to Nasdaq without using an ECN, you interact with a market maker. Each market has its own rules and its own connections. On Archipelago Exchange, everything is consolidated into one way of trading so you don’t have to go to different venues."
Say goodbye to specialists, market makers and mainframes. Archipelago Exchange will offer investors direct access to the markets, and its core operations run on Compaq servers and Windows 2000.
A secondary benefit, he added, is that the same rules apply to individuals and institutions, and everyone sees the order flow at the same time. "It’s just a better way of doing business. Over time it will generate real benefits because being able to trade all kinds of instruments in one place can result in considerable savings to the industry."
As an ECN, Archipelago has been a leader in offering investors immediate access to all markets, including prices on other ECNs. (The company name, Archipelago – a group of many islands -- makes this point in a subtle dig at Island). As an exchange, Archipelago will access the NYSE and Nasdaq through the Intermarket Trading System (ITS). That way, other participating exchanges will have to honor its prices. |
