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June 30, 2003

Stock Exchange Breaks OTC Volume Records

By Gregory Bresiger

ArcaEx recently set daily records in both exchange volume and OTC volume, trading almost half a billion shares. The Archipelago Exchange is also recording very strong listed volume and is gaining ground on its biggest competitors, ArcaEx officials said.

This comes at a time when officials of the exchange, the equity trading arm of the Pacific Exchange, now say it is operating in the black.

"We are financially sound and making money in this marketplace," according to Nelson Chai, chief financial officer of ArcaEx, which began as Archipelago ECN in 1997. But Archipelago officials, in announcing their success, took shots at leading competitors. They noted that both Nasdaq and Instinet, facing problems, have drawn criticism from investors and have had to impose cost-cutting measures.

"We are able to leverage an infrastructure that is smaller than our competitors," Chai added. "We have a business that is much more productive."

Neither Nasdaq nor Island/Instinet would officially comment. However, an Instinet official, speaking on background, said that he believed that ArcaEx was making money, but added it still trailed in many ways. "I'd take our business model over theirs any day. We have 30 percent of OTC volume. They're not even close to us in that," said the Instinet official.

Archipelago officials concede that Instinet/Island is ahead at 30 percent of market share. But they argue that their rivals' business has peaked. Both will soon start to slip, they contend.