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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, 2004

An Embarrassing Discovery About Speed and the ECNs

By John A. Byrne

ECNs are not equal execution providers. That's what a new study by a research firm suggests.

Instinet, for instance, offers some of the highest levels of price improvement. Island, which was acquired by Instinet, had the best overall propensity in all markets for price improvement. Attain had the fastest price improvement in the Nasdaq market. Brut offered the lowest implicit execution costs on Amex.

Want the highest levels of price improvement in certain volume among Nasdaq NNM market orders - and at the fastest speed? Nextrade has that. Tradebook, meanwhile, had the greatest certainty of execution among Nasdaq stocks.

These are some of the claims in the study by the research and advisory firm Celent Communications. The study also singles out the average execution speed of ECNs, which it contends, ranges from "impressive to embarrassing."

"Most ECNs execute most of their marketable orders within 10 seconds, and yet some execution speeds of certain marketable orders are as slow as three to five minutes," according to the study, authored by Jodi Burns. The average execution rates on ECNs for marketable orders is 39 percent compared with 83 percent across other market centers, notes the Celent study. The study suggests that ECNs are "great at executing liquid stocks at impressive speeds but they are not the best place to send orders in stocks with small to medium activity levels."