New Way to Trade Alternative Exchanges Revolutionizing Stock Markets

The Florida Times Union, August 30, 1999 | Go to article overview

New Way to Trade Alternative Exchanges Revolutionizing Stock Markets


NEW YORK -- Forget the image of the pinstriped Wall Street broker hustling across the crowded floor of the New York Stock Exchange. Replace it with an image of rows of quietly humming computers in the basement offices of Island ECN Inc.

Welcome to the future of stock trading.

Island operates one of about a dozen so-called electronic communications networks, or ECNs, vying to replace the NYSE and the Nasdaq Stock Market as the primary U.S. arena for buying and selling stock.

ECNs are revolutionizing the way stocks are traded in America by allowing investors to process their trades electronically with minimal interference from middlemen, such as Nasdaq market makers or Big Board brokers and specialists, whose commissions drive up investors' trading fees.

Professional investors have used alternative exchanges for years to bypass the traditional markets' costly and often cumbersome trading methods. But the recent explosion in Internet investing has led ECNs to broaden their scope in search of the growing number of individual investors who trade online.

One way ECNs are competing for the small investor market is by allowing them to trade in the after-hours sessions formerly reserved for professionals. Already, small investors who trade through brokerage firms hooked up to Island can trade outside the regular market hours of 9:30 a.m. to 4 p.m. And Instinet, which operates the oldest and most widely used ECN, recently teamed with online brokerage firm ETrade Group to allow ETrade's retail clients access to Instinet's afterhours market.

The impact is already being seen on Wall Street; the NYSE, the Nasdaq and the regional Chicago Stock Exchange have all announced plans to introduce after-hours trading sessions.

"The masses out there obviously want this, and you can see it by the popularity of the ECNs," said Tony Kafeiti, online supervisor at Castle Online, a Freeport, N.Y., discount brokerage firm that processes most of its customers' trades on ECNs.

Kafeiti said ECNs are popular because they allow small investors to take a hands-on approach to trading, and because the networks don't discriminate against small investors in favor of large professional traders, an accusation frequently made against the established exchanges.

"They've leveled the playing field," Kafeiti said.

Investors who trade using ECNs do so by sending their buy and sell orders to an online brokerage firm over the Internet. The brokerage firm then completes the trade almost immediately by processing it on an ECN. The entire process can be completed in seconds and cost around $20 -- far quicker and cheaper than using a traditional full service broker who trades on the NYSE or the Nasdaq. …

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