Marie Carone

 Broker-dealers  Exchange  Limit order  Limit order books  Institutional investors  Market-makers  OTC trading

 Off-exchange exchanges  ECN vs exchange Both Conduct transactions Collect fees Produce and sell market data Exchanges Can list stocks Govern themselves… ECNs Governed by the SEC

Specialist Book Price# of shares Asked $ ,000 $ ,000 $ $ ,000 $ Asked $ Bid $ $ $ $ $ $

 NYSE vs ECNs  NYSE Broker sends buy order to specialist Specialist finds sellers  ECNs broker sends buy order to ECN Computer matches orders No specialists  SEC charges 2005  Interpositioning – extra broker/dealer  Trading ahead – own account  Lucky

 Automated limit order books  Open display  Offer anonymity  After-hours trading  Subject to SEC’s Regulations  Order protection rule – best displayed prices  Access rule – fair access, limit on fees  Sub-penny rule

Instinet (1 st ) Archipelago Island BATS Direct Edge LavaFlow Bloomberg Track Data

 1 st Started in 1969 (before Nasdaq)  Subscribers  Institutional investors  Broker-dealers  Market-makers

Initially a broker-dealer  Operated electronically New category ECN  In 1997  And imposed order handling rules  Why?

 Display Rule  Display order if better than specialist’s or market maker’s  Quote Rule  ECN amendment  Make publicly available any superior prices

 After 1997 the number increased  Became a real competitor for Nasdaq  Archipelago, Brut, Island, Instinet

 Archipelago  1997  Both institutional and retail  Island  Mostly retail  Acquired by Instinet in 2002

 Early 2000  Instinet by NASDAQ  Archipelago by NYSE

 Restricted ECNs  Rescinded  SEC pressure  1999  Has since lost market share to ECNs

 ECNs has advantages over the traditional trading systems  Less expensive trade execution  Faster trade execution  More complete price information  Anonymity  Hours

 (n.d.). Retrieved April 6, 2011, from Investopedia:  (2005, 11 4). Retrieved April 6, 2011, from SEC:  Engber, D. (2005, April 21). Markets vs Exchanges. Retrieved 4 06, 2011, from Slate:  Fabozzi, F. J., Modigliani, F., & Jones, F. J. (2010). Foundations of Financial Markets and Institutions. Pearson Education Inc.  Samii, M., & Karush, G. (2004). International Business and Information Technology. New York: Routledge.  Understanding ECNs and Inside Spreads. (n.d.). Retrieved April 16, 2011, from UC San Diego Economics: 0inside%20spreads.pdf