PRWT has an excellant COMPETITVE ADVANTAGE in using the ECN for execution. In the June 24th press release they state that the www.insider-trading.net site will use NASADAQ ECN for execution. This is a competitive advantage and here is a little DD to clarify this point.
ECNÿ
An ECN, short for "Electronic Communications Network", is an order display and execution system that is linked into the Nasdaq computer network. An ECN matches buyers and sellers together that have advertised their orders on the ECN network. In order to have direct access to an ECN, your broker must be a subscriber to the ECN's service.ÿ Think of an ECN as a market within a market. Currently there are 6 ECN's that have been approved to be part of the Nasdaq computer network. If you have been using level II for a while you may recognize their names or symbols:ÿ1. Instinet Corp. (INCA)ÿ
2. Island (ISLD)ÿ
3. Bloomberg Trade Book (BTRD)ÿ
4. TerraNova Trading LLC (TNTO)
5. Spear, Leeds, and Kellogg (REDI)ÿ
6. All-Tech Investment Group (ATTN)ÿ *Author's Note*- Currently the Instinet and Island ECN's provide traders with the greatest liquidity. However, because Instinet has very strict guidelines regarding which firms it accepts as members, the Island has become the ECN of choice for many day trading firms and online brokers. For this reason, I will be using the Island ECN exclusively in the examples and illustrations to follow. Just keep in mind that the rules and concepts presented here could easily apply to any of the ECN's, not just the Island.Here is how an ECN works. When you place a limit order to buy through an ECN, it will attempt to "cross" or match your order with a seller on its system. If it can't find a seller it will place your order in a "limit book", which is nothing more than a listing of any unmatched orders for a stock. A limit book is divided into two parts, a bid side and an ask side. To get a visual idea of how a limit book is structured, let's look at a sample Island limit book for PairGain Technologies.PairGain Technologies (PAIR)
Island Limit Bookÿ
Bid Sideÿ
Ask Side
ÿ
Buy100028 5/16Sell100029 1/16Buy20028Sell100029 3/16Buy160028Sell100029 7/16Buy40027 1/2Sell10029 1/2Buy10027Sell100029 9/16Buy150027Sell50030Buy10026 13/16Sell10030Buy20026Sell10030 1/2Buy20026Sell15030 3/4Buy85024 7/8Sell20030 7/8Buy10023 1/2Sell65030 7/8ÿAs you can see, the layout is very simple. On the left side are the buyers, how many shares they want to buy and at what price. On the right are the sellers , how many shares they want to sell and at what price. Just like on level II, the best bid and ask prices are listed on the top row, the next best prices are listed on the second, etc. The best bid and ask prices currently in the book are displayed by the ECN on level II . Going by the limit book above, let's look at a level II screen for PAIR to see how the Island system fits in.<Picture>
The current inside market on the book is 28 5/16 x 29 1/16. Looking at the level II screen, we can see how these prices fit into the display. The bid of 28 5/16 is located in gray on the bid side, while the ask of 29 1/16 is located in aqua on the ask side. Before we go any further let's take a moment to discuss why anÿ ECN is such an attractive order execution system. First of all , there is no time or size restrictions on ordersÿ like there are on SOES orders. So you can place as many orders as you want at whatever sizes you want, being limited only by your own ability and speed of order entry. This is in sharp contrast to the 5 minutes you must wait between SOES executions and the maximum order size of 200, 500, or 1000 shares (depending on the stock). Second, orders are executed with lightning speed, provided the ECN can match your order with another on the system. This makes the ECN a very important tool for a day trader since fastÿ executions are a necessity. Finally, an ECN will allow you to "act" like a market maker by giving your orders the same visibility that a market maker's would have. Like SelectNet, this will give you the ability to execute orders between the spread. In fact, you can even buy at the bid and sell at the ask under certain circumstances.ÿ To give you a clear understanding of how this is done, let's work through a sample scenario in which we want to buy between the spread. |
