Fourth Market Electronic Communication Networks

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Presentation transcript:

Fourth Market Electronic Communication Networks Gabriel Williams BA 543 4/20/11

Electronic Communication Networks (ECNs) History of ECNs Agenda The Four Markets Electronic Communication Networks (ECNs) History of ECNs Current and Future May 3, 2019

Markets Primary Secondary Third Distribution to investors of newly issued securities Secondary Trading of financial assets already issued Third Trading exchange-listed securities over-the-counter (OTC) Allow investors to trade blocks directly May 3, 2019

Markets Fourth Trading exchange-listed securities between institutions usually on an Electronic Communication Network (ECN) Trades often are made in large blocks and without a broker May 3, 2019

Electronic Communication Network “Electronic trading systems that automatically match buy and sell orders at specified prices” (SEC) Automate processing of trading Reduce the risk of errors Permit users all over the world to trade, regardless of location Allow size of trades to vary without impacting cost Beneficial to more liquid assets May 3, 2019

History of the Fourth Market Instinet Incorporated in 1969 Aimed to compete with NYSE Proved itself in the 80s Dominant ECN until the late 90s IPO in 2001 Credited with many market innovations other than ECN May 3, 2019

History of the Fourth Market Regulation ATS Allows alternative trading systems (ATS) to register as national security exchanges In response to rapid technological advances Order Handling Rules Concept published 1997 Final rules effective in 2000 May 3, 2019

History of the Fourth Market Rise of the ECNs Archipelago 1997 Island 1997 Brass Utility (BRUT) 1998 Attain B-Trade REDIbook Strike Technologies NexTrade May 3, 2019

History of the Fourth Market NYSE Rule 390 Prohibits NYSE members from effecting transactions in NYSE-listed securities Need to eliminate broker-dealer conflicts of interest Request filed with SEC 1999 SEC approved 2000 May 3, 2019

History of the Fourth Market Age of Acquisitions/Mergers Instinet Acquired by Reuters 1985 Merged with Island 2002 Acquired by NASDAQ 2005 Archipelago Merged with Pacific Stock Exchange 2000 Merged with NYSE 2006 BRUT Developed by SunGard Merged with Strike Technologies 2000 Acquired by NASDAQ 2004 May 3, 2019

History of the Fourth Market Regulation NMS Intended to modernize and strengthen regulatory structure Trade Through Rule Access Rule Concept published 2004 Final rules adopted 2005 Phased implementation 2007 May 3, 2019

History of the Fourth Market Current ECNs dominate trading Future Increased functionality Negotiable systems Automated argumentation More structure and regulation May 3, 2019

Age of Acquisitions/Mergers Regulation NMS Current and Future Summary Fourth Market and ECNs Instinet Regulations ATS Rise of the ECNs Rule 390 Age of Acquisitions/Mergers Regulation NMS Current and Future May 3, 2019

Fourth Market – Electronic Communications Networks Sources Foundations of Financial Markets and Institutions Wikipedia Investopedia Wall Street & Tech Federal Reserve Bank of New York Federal Reserve Bank of St Louis SEC Questions? May 3, 2019