Commentary

Jared Dillian
Traders Magazine Online News

Was it Worth It?

In this piece from 10th Man, author Jared Dillian discusses how the ETF revolution is less about ETFs and more about indexing; about how people have come to view stocks less as stocks and more as blobs of stocks.

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December 1, 2001

Are ECNs Eating Nasdaq's Lunch?

By Staff Reports

Nasdaq, under pressure to retain its dominance in the dealer market, has brushed aside threats from encroaching ECNs.

The Archipelago ECN and the Pacific Exchange, which won SEC approval to establish a new stock exchange, ArcaEx, are eyeing Nasdaq's order flow.

One of Arca's potentially lethal marketing tools: Auctions to establish opening prices at 8 a.m and 9:30 a.m.

If an auction system succeeds, it could be a humbling lesson for Nasdaq, which has tried unsuccessfully to introduce an auction at the pre-opening.

But Nasdaq sees no threat from Archipelago, said a Nasdaq official, who declined to be quoted by name. Archipelago handles about five percent of Nasdaq trades. "It has no liquidity," the official said. "You need it to succeed."

Nasdaq similarly dismissed competition from regional exchanges that are starting Nasdaq trading programs. But the auctions are another matter. It could put pressure on Nasdaq dealers, among the critics of an auction, to rethink their stand.

"We don't have plans for an auction at this point," the Nasdaq official said. "But it is something we have examined periodically."

While Arca prepares to commence its stock exchange operations, another ECN may follow its lead. Island, the second largest ECN, is said to be considering partnering with the Cincinnati Stock Exchange (CSX). It became a member of the exchange last year.

One of the advantages in exchange status for Island is the market data fees that accrue to the sponsors. It also would allow Island to make money in the IPO markets and to list companies.