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Tim Quast
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We're All HFTs Now

In this guest commentary, author Tim Quast looks back at the history of HFT and how the market has evolved to where many firms now fit the definition of high-frequency trader.

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April 1, 1999

ECNs Hurt the Market, Instinet Chief Charges

By Michael L. O'Reilly

Douglas Atkin, president and chief executive of Instinet Corp., has sharply criticized stand-alone electronic communications networks (ECNs), calling them "dead business models."

At a recent equity-trading conference in New York, Atkin said ECNs are a product of an inefficient market structure, contributing to the detrimental fragmentation of Nasdaq, a comment that reflects the views of some traders in a story in this month's Trading & Technology section.

Atkin's comments were part of a panel discussion last month at an industry conference at Baruch College's Zicklin School of Business in New York.

"The situation now on Nasdaq is untenable. It's a virtual Frankenstein," Atkin added. "There needs to be a merging of orders and quotes. In an efficient market, there is no such thing as an ECN."

Instinet Corp., a subsidiary of London's Reuters Group, is the operator of Instinet, the top ECN in Nasdaq volume.

Instinet trades 150 million single-counted shares each day, representing more than fifteen percent of Nasdaq's daily volume.

Atkin called upon Nasdaq to implement a voluntary limit-order book to centralize the market, citing the need for one major pool of liquidity to help set prices.

A limit-order book on Nasdaq would compete with ECNs, and effectively price many ECNs out of the business. Atkin admitted that a Nasdaq limit-order book would cut into Instinet's business. But Atkin defended Instinet's position, saying it offers service beyond what is available in its capacity as an ECN.

"People confuse our services with an ECN," he said. "Instinet does offer ECN service as part of its over-the-counter trading portfolio. But that portfolio also includes upstairs block trading, research and analytics, transaction-cost analysis and soft dollars."