It has been six months since the New York Stock Exchange announced its plans to merge with the all-electronic Archipelago Exchange, a move that coincided with the Nasdaq Stock Market's acquisition of INET, the alternative trading system (ATS) operated by former Nasdaq rival Instinet. Traders say they welcome the change at the NYSE, but they aren't preparing to flood the exchange with order flow, nor are they letting go of their use of anonymous block trading networks. Still, the sense overwhelmingly is one of relief that the NYSE finally "gets it" - electronic trading is the future.
"E-trading is now the preferred mode of transaction," says Sang Lee, managing partner at Aite Group. "The NYSE going electronic is a huge concession. Now that they have started side-by-side manual and electronic trading, it is only a matter of time before e-trading takes over."
As a result of the merger, NYSE/Archipelago is offering the market two trading options. Traders either can use Archipelago's all-electronic platform or the NYSE's Hybrid system. The Hybrid platform, devised prior to the merger announcement, conditionally sorts orders either to be executed immediately or handed over to specialists for price improvement. Lee suspects the all-electronic Archipelago platform will experience greater volume growth than the NYSE's Hybrid.
Still, some traders are impatient for the NYSE to embrace electronic trading fully. Jamie Selway, a principal at White Cap Trading, says that NYSE's responsibility to shareholders as a public company may force the issue.
"Hybrid is a compromise between people who wanted electronic trading and those who didn't," Selway says. "If you have Arca, why compromise anymore? NYSE is now for-profit, but are they really going to be able to fund the overhead of three different systems - floor, Hybrid and Arca? Like most businesses, they will not have the luxury of saying they provide everything."
Asked to look three years down the road, Jerry Putnam, Chairman and CEO of Archipelago Holdings, acknowledges NYSE/Arca's responsibility to shareholders. "We'll end up with a marketplace that is not an ECN and is not floor-based - it will be somewhere in between," he says. "Eventually, we'll move to one system - shareholders will demand it."
Putnam adds that, at some point, it won't make sense to pay for two systems. "Initially we're keeping it as is or we wouldn't be able to get this thing done." So, when will one platform emerge, and what shape will it take? "We'll let customers determine where it's going to go," Putnam says.