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September 30, 1999

Archipelago Ready for Listed Stock Trading

By Peter Chapman

Archipelago Holdings, the fourth largest electronic communications network as measured by trade volume, said it plans to start trading listed stocks beginning on Nov. 1. A month later, the ECN plans to advertise listed stock prices on the Intermarket Trading System (ITS).

"We need to get representation for our quotes," said Archipelago senior manager MaryLyn Kurish. "This is a building block in our formation of an electronic stock exchange."

The ECN, which primarily matches limit orders for Nasdaq securities, filed with the Securities & Exchange Commission to become a registered exchange in August.

Archipelago already receives orders for 10 million to 15 million listed shares per day. At the moment, they all are re-routed to the New York Stock Exchange via the DOT system, a spokesman said.

The Leaders

Archipelago will become the fourth major alternative trading system - Instinet, Island and POSIT got there before it - to trade listed stocks. (Island plans to expand its three-stock pilot program to encompass all listed issues within a month, according to Josh Levine, Island's vice-president of software development.)

Unlike the others, however, Archipelago will plug into the ITS, enabling its prices to compete with prices broadcast on the seven U.S. listed stock exchanges, including the New York Stock Exchange. The ITS is the backbone of the National Market System, electronically linking price quote information and facilitating trading on the listed exchanges.

Archipelago said it has two choices for accessing the ITS. One of them is Nasdaq's Computer Assisted Execution System (CAES), an automatic execution network that connects broker dealers trading listed stocks. Alternatively, the ECN could become a member of a regional exchange.

CAES is used by third market firms, including Bernard L. Madoff Investment Securities and Trimark Securities.

Selway says the benefit of CAES is its familiar technology. The downside is its automatic execution feature. Also, broker dealers using CAES are limited to trading 19c-3 stocks, or those listed after April 26, 1979. They comprise two-thirds of all NYSE stocks, but do not include many of the most active issues.

Regional membership would allow Archipelago's customers to trade all stocks. But, according to Selway, the technology provided is not as strong as the CAES technology.