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Who's Who in ECNs?

Click here for detailed background on each of the major ECNs.

INSTINET CORP.

HISTORY:

A wholly owned subsidiary of Reuters Group, PLC, Acknowledged market leader for ECNs, although the company considers itself more than an ECN. Launched in 1969. Currently the largest global agency brokerage firm, with membership on 18 exchanges and trading in 40 markets. Instinet also is a leader in providing trading research and analytics and has a large presence in the upstairs block trading market. Operates 24 hours a day, 7 days a week. Began as Institutional Networks Corp., offering private electronic networks for large buy-side firms to trade listed stocks without the intervention of broker/dealers or exchanges. With limited success in that area, the company turned to Nasdaq stocks and began allowing broker/dealers to subscribe to the network in the mid-1980s. By moving to the OTC market, where no central exchange existed, Instinet became the de facto central order limit book for Nasdaq and began acquiring substantial market share. Recently made several key partnership deals: a 14 percent stake in online investment bank W.R. Hambrecht & Co., which operates OpenIPO; a 16 percent stake in Archipelago; and part of a consortium that acquired a 54 percent stake in Tradepoint, a London-based electronic exchange. Instinet also has held partnership talks with Nasdaq.

CLIENTS:

Instinet targets large buy-side firms and broker/dealers. As part of its push toward attracting retail flow, Instinet has turned its focus toward establishing relationships with online retail brokers in recent months.

STRATEGIC PARTNERSHIPS:

Instinet has been very active in establishing relationships with those institutions that share its business model of "using technology efficiently to bring issuers and investors together." Most recently, Instinet formed a partnership with Stockholm, Sweden-based OM Technology. That deal calls for the development of an electronic interface between Instinet’s ECN and Institutional Order Management—an Internet-based equity order-routing system OM expects to launch this summer. Via the interface, OM'S broker/dealer clients will have direct, online access to Instinet.

UNIQUE FEATURES:

24-hour-a-day operations.


ISLAND
New York, NY
https://www.isld.com

HISTORY:

Launched in January 1997 as one of four original ECNs. Majority owner is Datek. Island also has two investors: TA Associates and LVMH, a French luxury goods firm. Operating hours are 7am-8pm.

Company grew from a day trading system called the Watcher, developed by one of Island’s founders, Josh Levine. Watcher allowed day traders to gain access to the Nasdaq SelectNet system. In doing so, however, Island realized that, with sufficient volume, they could match the orders prior to routing to SelectNet. When the SEC began enforcing Order Handling Rule of 1997, Island was launched to absorb all the unwanted Nasdaq limit orders from various market makers. At first, Island targeted orders that Instinet didn’t want, namely retail order flow from online brokers and day traders.

Usually ranked number two in terms of volume, although Island says it is the largest and fastest-growing ECN.

TARGET CLIENTS:

Main client targets are sell-side firms. Island initially focused on online brokers and day trading firms, but proprietary desks/firms have provided the fastest growth in inflow of liquidity into the company. The company also has signed a few unidentified bulge bracket firms as subscribers. This is the first indication that Island is actually attracting firms that have traditionally associated themselves with Instinet. No plans are afoot to directly market to buy-side firms.

UNIQUE FEATURES:

Touts itself as one of the only two (the other being Instinet) true electronic matching engines in the ECN space. System is an auction market. The system accepts orders from broker/dealers and, by following an automatic price-time priority rule, Island can match orders virtually instantaneously.


BLOOMBERG TRADEBOOK
New York, NY
https://www.bloomberg.com

HISTORY:

Owned by Bloomberg, L.P., TradeBook began operations in December 1996, a month before it officially became an ECN. Currently has 25 employees and matches orders between 7:00 a.m. and 6:00 p.m. Plans to extend its operating hours to 24 hours, 7 days a week.

In true Bloomberg fashion, TradeBook was buy-side friendly in its initial phase of subscriber acquisition. Was one of the original four ECNs, cashing in on the Bloomberg name to launch with an enormous number of potential subscribers based on the massive market penetration of Bloomberg systems globally. This leverage quickly translated into TradeBook becoming the third-largest ECN by total trade volume. Bloomberg has also distinguished itslef through its savvy partnerships, including a joint venture with Investment Technology Group (ITG) and its electronic equity-crossing system, POSIT. Bllomberg then combined technology from both TradeBook and POSIT to launch TradeBook Super ECN, which hopes to boost liquidity by incorporating POSIT’s daily trading volume. Also formed a partnership with CLSA Global Emerging Markets to create Global TradeBook.

TARGET CLIENTS:

Both buy-side firms and large broker/dealers.

STRATEGIC PARTNERSHIPS:

Two big partnerships in place. The first relationship with ITG should improve liquidity in the US market. The relationship with CLSA will allow TradeBook to reach beyond its current domestic scope and place them as one of the pioneers in the global equities market.

UNIQUE FEATURES:

TradeBook tells its subscribers it gives them "the power to not move the market." Through its discretion and reserve functions, TradeBook is able to execute large transactions while minimizing overall market impact.


ARCHIPELAGO
Chicago, IL
https://www.tradearca.com

HISTORY: Originally formed as a joint venture between Gerald Putnam (founder of Terra Nova Trading LLC, a day trading firm) and Townsend Analytics Ltd. (a trading software company), Archipelago was one of the four original ECNs to be launched in January 1997. It sees itself as a hybrid of Instinet and Island. Current owners include Merrill Lynch, Goldman Sachs, E*Trade, CNBC, Instinet, J.P. Morgan, Gerald Putnam, Townsend and Southwest Securities. Operates from 8:00 a.m. to 5:15 p.m., although it plans to go to a 24-by-7 framework in the near future.

Archipelago was the first ECN to establish the "best execution model," in which, if an order cannot be matched within Archipelago’s internal book, the system "sweeps" the Nasdaq market makers and other ECNs for the best possible execution. Also features Smart Book software, which features the company’s proprietary preferencing algorithm. Smart Book enables orders to be executed internally and/or directly entered into the Nasdaq dealer system.

The aforementioned high-profile investors add quite a bit of liquidity into the system. In addition, Archipelago links to the Pacific Stock Exchange, NYSE, Instinet, Island and large Nasdaq market makers. Archipelago is also one of the members of the consortium that has a 54 percent stake in Tradepoint.

In March, Archipelago formed a partnership with the Pacific Exchange. The agreement calls for Archipelago to provide the Pacific with a trading engine that will serve as the heart of its equity business, eventually phasing out the exchange's stock trading floors in Los Angeles and San Francisco. The Pacific, which will act as the regulator of its reinvented equity market, will receive a minority stake in Archipelago.

Last year, Archipelago filed with the SEC to become an electronic exchange, but, with the Pacific arrangement, those plans were scrapped earlier this year.

TARGET CLIENTS:

Archipelago targets large buy-side firms, proprietary traders, hedge funds, broker/dealers and options market makers.

STRATEGIC PARTNERSHIPS:

Investors Goldman Sachs, E*Trade, Instinet, J.P. Morgan, Gerald Putnam, Townsend Analytics and Southwest Securities. Partnerships with other leading ECNs ensure a continued emphasis on the "best execution" method. Investment in Tradepoint represents a global strategy.

UNIQUE FEATURES:

Originator of sweep functionality and smart-routing based on its exclusive preferencing algorithm.


REDIBOOK
New York, NY
https://www.redi.com

HISTORY:

Originally owned by Spear, Leeds & Kellogg (SLK), REDIBook launched in November 1997. In the summer of 1999, Charles Schwab, Fidelity and Donaldson, Lufkin & Jenrette each purchased large chunks of the company. Then, in October 1999, PaineWebber Inc., Credit Suisse First Boston, Lehman Brothers, TD Waterhouse Group and National Discount Brokers Group Inc. (NDB) all signed letters of intent to purchase minority stakes in Redibook. Hours of operation are 8 a.m. to 10 p.m.

Like BRUT and TradeBook, SLK launched REDIBook hoping to capitalize on the installed base of SLK’s REDIPlus order entry and execution system. At first, REDIBook merely accepted the order flow and tried to match the best bid and ask internally. More recently, though, REDIBook added the ability to proactively seek out the best execution and price outside of its order book.

TARGET CLIENTS:

REDIBook concentrates on institutional investors, hedge fund managers, day trading firms, individual traders and options market makers.

STRATEGIC PARTNERSHIPS:

REDIBook’s minority owners bring tremendous potential in terms of liquidity.

UNIQUE FEATURES:

REDIBook offers a "proactive" feature, through which an order that cannot be filled internally can be routed to all market makers and ECNs for the best available price and execution.


BRUT (BRASS UTILITY LLC)
New York, NY

HISTORY:

Owned by Automated Securities Clearance Ltd (ASC), a division of SunGard Data Systems, BRUT began operations in May 1998. Hours of operation are 8:00 a.m. to 5:15 p.m.

In February, BRUT merged with Strike Technologies to become the third-largest ECN, using the BRUT name. The new ECN brought together 30 equity partners, including Bear Stearns, Bridge, Goldman Sachs, Herzog Heine Geduld, Knight-Trimark Group, Lehman Brothers, Merrill Lynch, Morgan Stanley Dean Witter and Salomon Smith Barney. A recent report showed that trade volume on the BRUT ECN increased almost 90% during the fourth quarter of 1999 over the previous year.

ASC operates BRASS (Brokerage Real-Time Application Support System), a popular trade management system, and obviously saw that it could take advantage of that popularity with its own ECN. A large percentage of BRUT’s volume comes from its group of financial institutions investors, and it also gets volume from Waterhouse, E*Trade, Knight/Trimark.

A recent report by Hambrecht & Quist shows the BRUT ECN as the fastest growing ECN, with volume increasing almost 90% in the fourth quarter last year.

TARGET CLIENTS:

Known as the "broker-friendly ECN." Not surprisingly, BRUT requires buy-side firms interested in receiving its service to be sponsored by a BRUT subscriber.

STRATEGIC PARTNERSHIPS:

BRUT is in talks with Island for a possible direct link in the near future. The ECN also expects to soon go live with an interface connecting its Universal Market Access (UMA) front end with the New York Stock Exchange's Designated Order Turnaround (DOT) system. Brut, which currently trades only Nasdaq stocks, has built the electronic connectivity to DOT in anticipation of trading NYSE-listed stocks--for the first time--in the second quarter. In addition, the ECN recently launched Brut.com, a front-end software tool aimed primarily at day-trading firms.

UNIQUE FEATURES:

BRUT promotes its low-cost pricing, which can be 90 percent lower than other ECNs. BRUT features the sweep function, which enables subscribers to send orders to other market makers and ECNs via Nasdaq’s SelectNet system.

MARKETXT

HISTORY:

The latest ECN to enter the market. Originally launched as Eclipse Trading, an after-hours trading system. Began operating as an ECN in January 2000. In February 2000, the company was acquired by Tradescape.com in a $100 million stock deal. Following the deal, Tradescape is integrating the MarketXT trading system with its own and routing orders to the recently SEC-approved ECN. Operating hours are from 4 p.m. until 8 p.m., although MarketXT is looking to soon extend those hours.

TARGET CLIENTS:

Original customer base was professional traders and individual online investors, but the company is now looking to appeal to institutional clients, as well.

STRATEGIC PARTNERSHIPS:

Minority owners also include Morgan Stanley, Salomon Smith Barney, Herzog Heine Geduld, Polaris Venture Partners and Bernard L. Madoff Investment Securities. Prior to the Tradescape acquisition, MarketXTY hired IXnet to manage and maintain its network. IXnet is the networking subsidiary of turret giant IPC Information Systems.


ATTAIN

HISTORY:

Owned by Rushmore Financial Services, Inc., the parent company of All-Tech Investment Group (a day trading firm), Attain began operations in February 1998. Hours are between 9:00 a.m. and 4:30 p.m.

Attain is hampered by the fact that it has no established connectivity or source of large liquidity.

TARGET CLIENTS:

Broker/dealers, banks and hedge funds. It has been stepping up its acquisition strategy to increase its subscriber base and liquidity.

STRATEGIC PARTNERSHIPS:

Other than All-Tech, none.

UNIQUE FEATURES:

Attain can be accessed via the Internet and a modem, so subscribers can avoid fees for hardware and monthly service. In addition, Attain has no minimum transaction requirements.


NEXTRADE
Clearwater, FL
https://www.NexTrade1.com

HISTORY:

Owned by NexTrade Holdings, Inc., NexTrade became an ECN in November 1998 and began actively operating in January 1999. Currently operates 24 hours a day, seven days a week.

Five years ago, NexTrade was a stock quoting system. NexTrade has negligible market share, however, as a result of its late entrance into the market. One way of increasing its market presence has been to try to attract the institutional side, in addition to moving toward becoming an electronic exchange. Earlier this year, NexTrade completed its formal application to become a for-profit stock exchange and is now awaiting final approval from the SEC. The proposed NexTrade Exchange is expecting to be operational by October of 2000. In anticipation of gaining exchange status, NexTrade is teaming with BEA systems to build a high-volume stock trading system. NexTrade has also entered into an agreement with Dreyfus Brokerage Services to provide Dreyfus customers with market access, trade executions and technology.

NexTrade also has formed partnerships with GlobalNet and Valhalla Forex to launch Matchbook FX, LLC, an institutional foreign exchange system based on the same technology running the NexTrade ECN. Consequently, NexTrade will become the first ECN to offer foreign exchange trading.

TARGET CLIENTS:

NexTrade targets all financial institutions, including the buy side, online brokerage firms and traditional broker/dealers.

STRATEGIC PARTNERSHIPS:

NexTrade has formed partnerships with GlobalNet and Valhalla Forex to develop Matchbook FX, LLC, an electronic foreign exchange trading platform.

UNIQUE FEATURES:

NexTrade operates 24 hours. It’s an Internet-based system built upon a proprietary database engine called SmartMatch, which uses its own proprietary API.

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