i think this cbs article puts things into better perspective, especially if one examines the volume is only 25 million shares a day on naz and 10 million on nyse.
cbs.marketwatch.com
Merrill invests in Archipelago
Thundering herd takes 14 percent stake in ECN
By Emily Church, CBS MarketWatch
Last Update: 12:00 PM ET Sep 9, 1999 NewsWatch
NEW YORK (CBS.MW) -- Merrill Lynch on Thursday announced it's joining Goldman Sachs and J.P. Morgan among others to take an equity stake in upstart electronic share-matching network, Archipelago.
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Merrill (MER: news, msgs) said it's investing in exchange for a 14.3 percent stake in the Chicago-based electronic communications network (ECN). Terms were not disclosed. See release.
The move could have the potential to change the trading landscape once again this year on Wall Street. Trading volumes have been growing at the ECNs -- at least three of which have filed with regulators to become exchanges. Archipelago filed last month, with plans to launch 24-hour trading on April 1 next year.
But for now, Merrill's dip into the ECNs looks more like a hedge. The big firms are largely seen to be working to get in on the ground floor, where ever that trading floor may be in the near future.
"This is part of a consistent pattern in which the large brokerage houses are taking positions in ECNs because of a combination of the herd mentality that rules in management in the industry; a lack of understanding of where the ECNs are going; and, the fear that they might really turn out to be something big," said James Marks, an industry analyst at Deutsche Bank Alex. Brown.
"Until they direct the order flow (to the ECNs), this has to be seen as a defensive posture," he said.
Archipelago's daily volume -- at 25 million shares in Nasdaq stocks a day and some 10 million shares in New York Stock Exchange-listed shares -- is still relatively light despite the huge order flow potential from its roster of investors, including Goldman (GS: news, msgs), E-Trade (EGRP: news, msgs) and Instinet, a Reuters (RTRSY: news, msgs) unit, which each own about a 14 percent stake. J.P. Morgan (JPM: news, msgs) and American Century Companies together have about a 14 percent.
Archipelago's rivals, Instinet and Island ECN, have greater volume numbers. Nonetheless, Archipelago's volume has grown from some 1 percent of Nasdaq volume in December 1998, to over 2 percent today, said spokeswoman Mary Lyn Kurish. Goldman and JP Morgan are hooked in, but E-Trade has yet to be linked to Archipelago's network due to technical issues, she said. Merrill is expected to be hooked up soon. Am Instinet link has existed for a while.
Meanwhile, the NYSE and the Nasdaq Stock Market have been reaching to respond to the coming competition by floating IPO plans and trying to keep expanded hours in their camp. Merrill's bankers recently completed a pro bono study on the merits of going public for the NYSE.
Merrill officials were not immediately available for comment. |
