Evolving ECNs:The Alliance with Exchanges under Reg NMS

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27 December 2005
David Easthope

Abstract

Boston, MA, USA December 27, 2005

Evolving ECNs: The Alliance with Exchanges under Reg NMS

ECNs are making significant inroads into the domain of traditional exchanges, and technology upgrades and Reg NMS are driving them even further. Rising from only fractional market share in the late 1990s, ECNs now comprise over 60% of OTC share volume.

Technology upgrades and Reg NMS have put electronic communication networks (ECNs) in the driver痴 seat. According to Celent, ECNs will continue to dominate over-the-counter (OTC) securities trading due to new technology initiatives, while Reg NMS will allow them to further penetrate listed trading. Reg NMS is changing both how ECNs compete with traditional exchanges and other ECNs.

In a new report, Evolving ECNs: The Alliance with Exchanges under Reg NMS, Celent explores how Reg NMS and new technology initiatives are impacting ECNs. Celent describes the evolution of the ECN industry, provides statistics on market share of each ECN in OTC and listed trading, details ECN technology architecture and business models (including ArcaEx and INET/BRUT), and predicts the future of ECNs under Reg NMS.

"Once a separate category, ECNs are now becoming indistinguishable from exchanges," says Octavio Marenzi co-author of the report and President and CEO of Celent. David Easthope, co-author of the report and analyst in the Securities and Investments group at Celent, says, "On its face, Reg NMS appears to favor ECNs due to its emphasis on the automation of trading. ECNs are expected to make continued gains against the specialists. However, the greatest overall impact of Reg NMS will be on the NYSE by forcing it to adopt the electronic model in its recently outlined hybrid structure."

The 31-page report includes 16 figures and three tables. A table of contents is available online.

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