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Joanna Fields
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Navigating Cybersecurity on a Stretch of "Regulatory Rapids"

In this shared commentary, Aplomb Strategies writes that when considering a firm’s governance structure, a holistic approach makes the most sense.

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July 27, 2005

Arca Courts Market Makers and Specialists

(Traders Magazine, July 2005) -- The Archipelago Exchange is looking for a few good market makers.The country's largest electronic stock exchange, as part of its plan to compete with Nasdaq for listings, is courting specialists and market makers. By making changes to its technology and rules, Arca hopes to encourage trading houses to make markets in new listings on its platform.

"We have a fabulous system for trading highly active securities," says Jenny Drake, Arca's executive in charge of listings. "But as you get into the less active companies, there is a need for dealer capital." Currently, four major brokerages make markets in the stock of parent company Archipelago Holdings on ArcaEx. Another six small firms trade ETFs and other securities.

Arca's market-making program, which needs SEC approval, will first apply to securities listed on ArcaEx. It will then be expanded to cover the securities of Nasdaq and other exchanges.

The plan is to assign only one dealer to each stock. Also, orders will flow into Archipelago rather than directly to the dealer. Those are standard practices at the nation's stock exchanges, but contrary to Nasdaq practices.

Drake notes, however, that market makers at Arca are not saddled with as many obligations as typical exchange specialists. Arca has tried to build a dealer community before, but with little success. "In the past, there weren't many benefits or obligations to being a market maker," Drake said. "We are now really trying to introduce those benefits and obligations."