Emerging Industry Overview: Electronic Communications Networks

Industry Snapshot

Electronic Communications Networks (ECNs) are computerized trading systems that link buyers and sellers of stocks (some have also delved into other securities and financial instruments). ECNs take the place of broker-dealers on the Nasdaq Stock Market, who are often large brokerages and investment banks such as Goldman Sachs and Merrill Lynch, and the so-called specialists on the New York Stock Exchange (NYSE), who include many of the same firms but have a monopoly on the market for a specific NYSE-listed-company's shares. In short, ECNs cut out the middlemen.

Complicating matters are the many similarities between ECNs and stock exchanges. Indeed, starting in 1999, several ECNs filed with the Securities and Exchange Commission (SEC) for exchange status. In 2002, Archipelago Holdings, one of the smaller ECNs, merged with the Pacific Stock Exchange to create the first hybrid ECN exchange. Archipelago was thus in the highly favorable position of actively trading NYSE stocks while functioning as an exchange.