Frank, I've been reading an SEC report about Electronic Communications Networks (ECN's) such as Island which Datek runs. Evidently there is a lot of debate going on about these types of alternative trading systems. In particular, the concern is that it is hard to regulate the activities of these trading systems. Notice this quote from the SEC report: (an SRO is a self-regulatory organization such as NASD)
In addition, because alternative trading systems are often reported as the counterparty to all trades between institutions executed through their systems, SRO surveillance mechanisms may not be able to identify the true counterparties of those trades. As a result, fraudulent or manipulative activity that an institution is carrying on through an alternative trading system may be masked by the overall activities of the system's other participants, and go uninvestigated. As more institutions use alternative trading systems to trade with each other, rather than with intermediaries, this could result in significant volume that is not integrated into SRO surveillance operations. Finally, alternative trading systems that compete with systems operated by SROs have repeatedly questioned whether particular SRO actions were driven by competitive, rather than regulatory motives. Thus, adequate oversight of alternative trading systems by SROs may be hindered by competitive concerns.
Other ECN's such as Island that represent themselves on Nasdaq level 2 are Instinet, POSIT, and AZX. The report also mentions:
"Island is operated by Datek Securities Corp., a registered broker-dealer."
I don't know what all this means, but it appears that there is more room for manipulation within these type of trading systems. This probably explains why Datek can charge relatively low charges for orders, since they handle their own order flow. The report is a long one, but very informative. Here is its URL:
sec.gov
A lot of interesting stuff out there. But, it does confirm that Datek needs to take responsibilty for its actions as a Broker-Dealer which is covered by more stringent regulation.
I hope the above helps,
Jack
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