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ELECTRONIC COMMUNICATIONS NETWORKS ECNs as they are popularly known are well-established trading platforms in the United States USA A New York Times article reports that electronic trading is one in four transactions made by individual investors in USA The goal of ECNs is to cut out intermediaries between buyers and sellers in stock transactions Today ECNs account for approximately 30 of total share volume and 40 of the dollar volume traded in Nasdaq securities ECNs account for approximately 3 of total share and dollar volume in listed securities4 In contrast in 1993 ECNs accounted for only 13 of share volume in Nasdaq securities and only 14 of listed share volume SEC Report 2005 op cit 1 Instinet a Reuter subsidiary and a network established in 1969 to allow mutual funds and other institutional investors to post orders anonymously at prices inside the wide spreads remains the biggest ECN It trades in more than 40 stock markets including the NYSE Most ECNs like Instinet are for institutional customers only However The Island and Archipelago owned by Datek Holdings an online trading firm accept trades from small investors The Archipelago system allows an order to leave the network once it is determined that nobody is willing to take the opposite position and get posted onto the NASDAQ marketplace The one bottleneck that hinders efficient performance of ECNs is volume Given volatility of NASDAQ scrips it is important that an ECN quickly match orders lest the market move away from the requested price The information technology revolution has provided investors with new execution choices Of special note are the recent growth of alternative trading systems known as Electronic Communications Networks ECNs and the increased opportunities for trading in the after-hours market SEC report 2005 op cit 1 ECNs emerged following a change in the NASDAQ market rules resulting through a SEC investigation in 1995 that required market-makers to provide postings on their trading systems for customer
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