On the heels of its agreement to sell a 16.4% equity stake in the company to Reuters Instinet Corp., Chicago-based electronic communications network (ECN) Archipelago LLC indicated that it will likely extend its hours of operation by September. Driven by demand from its retail investor clients, Archipelago, which currently runs from 6:30 a.m. to 5 p.m. EST, expects to expand its hours to 9 p.m. or 10 p.m. EST. Archipelago, which ultimately wants to migrate to a 24-hour trading environment, is also filing an application with the SEC this week to be registered as a self-regulated stock exchange.
The deal between Instinet and Archipelago groups Instinet in an ownership cluster that includes Goldman Sachs, E*Trade Group, J.P. Morgan and American Century Companiesall of which purchased minority equity stakes in Archipelago earlier this year. Collectively, that quintet now owns 82% (or 16.4 % each) of Archipelago, an equity trade matching system which competes on some level with both Instinet, the largest institutionally-oriented ECN, and Datek Online Holding Corp.s individual investor-targeted Island ECN. Archipelago may also in the near future find itself in heated competition with a new, Fidelity Investmentsbacked ECN consortium.
Archipelago CEO Gerald Putnam says that the process of getting the green light to operate as an exchange likely will take anywhere from "nine to 18 months," but Archipelago plans to forge ahead with that plan even if it takes two to three years. "That said, prior to becoming an exchange, Archipelago intends to respond to customer demand for longer trading hours.
In July, Archipelago traded a daily average of roughly 25 million Nasdaq stocks and 10 million New York Stock Exchange-listed issues. Archipelago does not expect Instinets new equity stake to significantly boost those figures, Putnam says.
Sources say that Archipelagos potential exchange business model was also a motivating factor for Instinet, which has no intention of registering its own ECN as an exchange but wants a presence in that game. Instinet CEO Doug Atkin did not return calls by press time.
Instinets relationship with Archipelago really dates back to February of this year, when the firms decided to build an electronic interface between Instinets ECN and Archipelago. That arrangement, Putnam says, calls for Archipelago to lift orders from Instinet when the ECN "has a customer order thats better than whats available" over its own platform. "Order flow thats coming to us that could be filled at a better price on Instinet, is routed to Instinet," says Putnam. Interestingly, despite the interface, Instinet does not lift orders from Archipelago.