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

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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

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

13. 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

14. 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