1. Marie Carone

3.  Broker-dealers  Exchange  Limit order  Limit order books  Institutional investors  Market-makers  OTC trading

4.  Off-exchange exchanges  ECN vs exchange Both Conduct transactions Collect fees Produce and sell market data Exchanges Can list stocks Govern themselves… ECNs Governed by the SEC

5. Specialist Book Price# of shares Asked $ 19.4020,000 $ 19.3010,000 $ 19.27700 $ 19.2311,000 $ 19.22900 Asked $ 19.20500 Bid $ 18.70200 $ 18.68300 $ 18.67700 $ 18.661100 $ 18.6510000 $ 18.6014000

6.  NYSE vs ECNs  NYSE Broker sends buy order to specialist Specialist finds sellers  ECNs broker sends buy order to ECN Computer matches orders No specialists  SEC charges 2005  Interpositioning – extra broker/dealer  Trading ahead – own account  Lucky

7.  Automated limit order books  Open display  Offer anonymity  After-hours trading  Subject to SEC’s Regulations  Order protection rule – best displayed prices  Access rule – fair access, limit on fees  Sub-penny rule

8. Instinet (1 st ) Archipelago Island BATS Direct Edge LavaFlow Bloomberg Track Data

9.  1 st Started in 1969 (before Nasdaq)  Subscribers  Institutional investors  Broker-dealers  Market-makers

10. Initially a broker-dealer  Operated electronically New category ECN  In 1997  And imposed order handling rules  Why?

11.  Display Rule  Display order if better than specialist’s or market maker’s  Quote Rule  ECN amendment  Make publicly available any superior prices

12.  After 1997 the number increased  Became a real competitor for Nasdaq  Archipelago, Brut, Island, Instinet

13.  Archipelago  1997  Both institutional and retail  Island  Mostly retail  Acquired by Instinet in 2002

14.  Early 2000  Instinet by NASDAQ  Archipelago by NYSE

15.  Restricted ECNs  Rescinded  SEC pressure  1999  Has since lost market share to ECNs

16.  ECNs has advantages over the traditional trading systems  Less expensive trade execution  Faster trade execution  More complete price information  Anonymity  Hours

18.  (n.d.). Retrieved April 6, 2011, from Investopedia: http://www.investopedia.com/terms/t/tradingahead.asp  (2005, 11 4). Retrieved April 6, 2011, from SEC: http://www.sec.gov/divisions/marketreg/mrecn.shtml  Engber, D. (2005, April 21). Markets vs Exchanges. Retrieved 4 06, 2011, from Slate: http://www.slate.com/id/2117171/  Fabozzi, F. J., Modigliani, F., & Jones, F. J. (2010). Foundations of Financial Markets and Institutions. Pearson Education Inc.  Samii, M., & Karush, G. (2004). International Business and Information Technology. New York: Routledge.  Understanding ECNs and Inside Spreads. (n.d.). Retrieved April 16, 2011, from UC San Diego Economics: http://econ.ucsd.edu/~mwilloug/documents/Articles%20and%20Reports/NASDAQ%2 0inside%20spreads.pdf