Archipelago a success with technology in trading
January 13, 2003
BY DARCY EVON SUN-TIMES COLUMNIST Advertisement
More than two years ago, Business Week declared Chicago to be a dying commercial center in an infamous article titled "Chicago Blues," setting off a fury among business leaders.
The article argued that the city had lost its status as a global financial center and was lagging badly behind other areas because Chicago refused to adopt modern technology, particularly electronic trading.
Things have changed much since 2000, and many stalwart Chicago financial institutions have openly embraced technology, and none as eagerly as Archipelago ( www.tradearca.com ), a clear leader in its market.
A lonely pioneer when it was founded in late 1996 by Gerald Putnam and Stuart and MargWen Townsend, the tiny upstart has grown into a major electronic stock exchange for stocks listed on major exchanges.
Putnam had a great technology and a great idea that was made possible by changes in the Security and Exchange Commission rules in 1996 allowing for electronic communication networks (ECNs) that would list and fill limit orders for stocks electronically. By early 1997, Archipelago was one of four ECNs approved by the SEC to trade Nasdaq-listed stocks.
$200 million bankroll
Archipelago helped put Chicago on the venture capital map when it raised roughly $200 million beginning in January 1999 from stalwart institutional investors Goldman Sachs, E*Trade, J.P. Morgan Chase, Merrill Lynch, American Century, Instinet, and many others.
Not content with just being an ECN, Archipelago aimed to be a full-fledged electronic exchange, said President Mike Cormack, who joined as national sales manager three years ago.
Archipelago provides the infrastructure, or "plumbing," that allows individuals to execute their trades and shave off significant time from a transaction. The critical technology that matches buyers and sellers was largely built by Townsend Analytics. The competitive advantage of the Archipelago Exchange is that everyone sees the same information at the same time. Prior to the change in rules that opened the door for ECNs, market makers were not required to display the best prices for their broker-dealers, and could lock in guaranteed profits with no risk.
"This is all about transparency," Cormack said. "We want to be the low-cost provider to the financial services community."
The system is working. Archipelago got a big boost when it merged with REDIBook in March 2002. The value of executing trades faster, better and cheaper has a special attraction for investors, and the Archipelago Exchange (ArcaEx) is flourishing--relatively speaking--in its sector.
"Quarter-to-quarter we have been fighting the same margin battle as everyone else, and 2002 was a tough year," Cormack said. "But we have been lucky to have a growing business, and are looking to become profitable in 2003."
When ArcaEx launches OTC trading of Nasdaq stocks later this month, the transformation of the company will be complete (it will also save money by avoiding fees paid to Nasdaq).
"The OTC launch is a huge win for Chicago," noted Al Wasserberger, CEO of Spirian Technologies, which helped with the connectivity and infrastructure build out of the technology platform. "This shows how the use of technology will give them competitive advantage over the old guard in New York. This sends a message that Archipelago will be more competitive than the Nasdaq itself because of the use of technology."
Cormack joined the company when Archipelago had only a 2 percent market share. "As of (Wednesday)," he declared, "we had 25 percent market share in the Nasdaq." That growth translates from a volume of 30 million shares to 512 million in November 2002.
Spunky ad campaign debuts
To further its standing in the competitive landscape, Archipelago unveiled a spunky advertising campaign last fall that runs through the rest of this month. "The Open Show" features two average guys named Jeff and Neal who search for the right signal to open the ArcaEx.
The one-minute spots, created by Buzzer 51 out of New York and Los Angeles, run each trading day at 7:59 a.m. on CNBC to herald the opening of ArcaEx at 8 a.m.
"Each day features a different spot," said Margaret Nagle, a marketing and communications maven for Archipelago. She knew that investors didn't want to see the same commercial 10 times, and she wanted to achieve something dynamic, humorous and memorable. She said the commercials also underscore the difference of opening a traditional exchange with a trading floor, and the hip electronic exchange that is virtual from any location.
Darcy Evon is editor of I-Street magazine, a monthly publication for the technology industry, and the I-Street Reporter, an independent free online newsletter. |
