The Archipelago Exchange (ArcaEx), an all-electronic equity market that went live in March of this year, has completed its rollout of roughly 3,300 New York Stock Exchange, American Stock Exchange and Pacific Exchange stocks. The exchange's parent, Archipelago, also plans to migrate all of the Nasdaq stocks it currently trades via the Archipelago ECN to ArcaEx by the first quarter of 2003. Separately, at press time, Archipelago acquired GlobeNet, a small electronic communications network that specializes in matching over-the-counter bulletin board stocks.
Jamie Selway, Archipelago's chief economist, says that Archipelago has seen a 60 percent increase in its listed business in 2002 -- mainly due to the launch of its exchange business. ArcaEx, he notes, replaced the Pacific Exchange's equity-trading floor as part of a partnership that called for the Pacific to act as the regulator of the new electronic exchange. In 2001, prior to its alliance with the Pacific, Archipelago accounted for significantly less than one percent of the overall listed equities business in the United States. But today, Selway says, ArcaEx accounts for approximately two percent of the U.S.-listed equities volume. "At this time last year, when we were just an ECN ... we were showing a (listed) quote in the third market, but couldn't do some of the things we're doing now -- (such as) sharing tape revenue and giving exchange prints to the client," Selway explains.
In addition to boosting its single-stock listed business, the launch of ArcaEx has also boosted Archipelago's exchange-traded fund (ETF) volume. Selway says that Archipelago's share of the overall U.S. ETF pie has grown from 3 percent last year to between "5.5 and 6 percent" today. This growth, he says, can be at least partially attributed to the fact that, due to its exchange status, ArcaEx is now hooked up directly to the Intermarket Trading System (ITS) -- a linkage mechanism that connects the NYSE, Nasdaq and seven other regional U.S.-stock markets.
Previously, when it traded listed stocks as a member of the National Association of Securities Dealers, Archipelago could only link its quotes to ITS in an indirect fashion. Under that arrangement, Archipelago had to route its listed orders to ITS through the Computer Assisted Execution System -- a Nasdaq-supplied order-routing interface that delivered listed orders, on behalf of NASD members, to ITS. Through ITS, in turn, the listed quotes of NASD members would eventually get posted in the National Consolidated Quote System -- a display platform that advertises prices that can be seen by everyone who participates in ITS.
Today, instead of going through the "extra" CAES hop, ArcaEx can send orders directly to ITS, says Selway. Moreover, ArcaEx's listed quote is displayed as an ArcaEx on the NCQS. When it went through the ITS/CAES link, Selway explains, Archipelago's listed price was displayed simply as a "Nasdaq" quote on NCQS.
Archipelago's next major project is to complete its integration with the Redibook ECN. Redibook and Archipelago, former rivals, joined forces last year, and Redibook's matching engine is currently being tweaked to handle all of the Nasdaq stocks traded by the combined ECNs. After the Redibook integration is completed, says Selway, Archipelago will then begin its process of migrating all of its Nasdaq stocks from the Archipelago ECN to ArcaEx. That staged rollout, he says, will likely begin very early in 2003, and is scheduled to be completed before the end of the first quarter.
In the interim, the Archipelago ECN must decide whether its going to post its Nasdaq quotes on Nasdaq's own SuperMontage order-routing and execution platform or on the Alternative Display Facility -- a simple quote display and trade printing platform being developed jointly by the NASD and Stockholm, Sweden-based OM. Selway says that the Archipelago ECN is still uncertain about where it's going to post its Nasdaq quotes. Mostly, he says, that decision is "not a big deal," because the firm's Nasdaq stocks will eventually be converted to ArcaEx. However, Selway says that if the Archipelago ECN does decide to display its Nasdaq quotes on SuperMontage, it will only deliver its best bid or offer to the platform.
At press time, Archipelago also grabbed headlines by acquiring GlobeNet, a small ECN that will give the firm a foothold in the OTC bulletin board business. Prior to acquiring GlobeNet, Archipelago did not have a presence in the trading of bulletin board issues -- OTC stocks that are not listed or traded on Nasdaq or any other national securities exchange. But the electronic trading of OTC bulletin board stocks is GlobeNet's main business. Terms of the acquisition were not disclosed.