Evolving ECNs:The Alliance with Exchanges under Reg NMS

by David Easthope, December 27, 2005

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.

of Celent's Institutional Securities & Investments and Retail Securities & Investments research services can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.

        

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Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

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Table of Contents

 

Boston, MA, USA December 27,  2005

Evolving ECNs: The Alliance  with Exchanges under Reg NMS

Return to report Abstract

 

Executive Summary 3
Introduction 4
Market Structure 5
ECN Evolution 7
ECN Market Impact 9
ECN IT Architecture 14
ECN Business Model 19
Components of Reg NMS 22
ECN Impact From Reg NMS 26
Conclusion  29
Objectivity and Methodology  30

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