ECN & ECN's

[JTrader]

Hi

the T2W glossary gives the following definitions of ECN & ECN's.

ECN = Electronic Communications Networks. Alternative trading systems that bring buyers and sellers together for electronic execution of trades.

ECNs = Electronic Computer Networks that link buy and sell stock orders.


Please could someone tell me if these two definitions are referring to the same thing?

Please could you also give examples of both ECN & ECN's?

What would SETS level 2 be an example of for example?

Many thanks

jtrader.

 

[Trader333]

Please could someone tell me if these two definitions are referring to the same thing?

Please could you also give examples of both ECN & ECN's?

Yes they are the same thing. Examples would be Arca (Arhipelago), Cinn (Island) On a Level II screen they are identified by being in lower case where Market Makers (MM) are capitalised. This only applies to Nasdaq stocks.


Paul

 

[JTrader]

Thanks Paul

so it seems that the terms "Electronic Communications Networks" and "Electronic Computer Networks" are interchangeable within the trading context.

Below is some further information that I was able to find about ECN's.

Many thanks

jtrader.

 

[JTrader]

"Electronic Communication Networks (ECNs)

Electronic Communications Networks, or ECNs, are electronic trading systems that automatically match buy and sell orders at specified prices. ECNs register with the SEC as broker-dealers.

Those who subscribe to ECNs – institutional investors, broker-dealers, and market-makers – can place trades directly with an ECN. Individual investors must currently have an account with a broker-dealer subscriber before their orders can be routed to an ECN for execution. When seeking to buy or sell securities, ECN subscribers typically use limit orders. ECNs post orders on their systems for other subscribers to view. The ECN will then automatically match orders for execution.

If a subscriber wants to buy a stock through an ECN, but there are no sell orders to match the buy order, the order can't be executed until a matching sell order comes in. If the order is placed through an ECN during regular trading hours, an ECN that can't find a match may send the order to another market center for execution.

To learn more about the basics of trade execution – including order routing, payment-for-order-flow, and internalization – you should read Trade Execution: What Every Investor Should Know. You can also read a special study prepared by the staff of the SEC that discusses the impact of ECNs and after-hours trading on the securities markets."

http://www.sec.gov/answers/ecn.htm

 

[JTrader]

"Electronic Trading: Electronic Communications Networks (ECNs)

An ECN is an electronic system that attempts to facilitate (for market makers) or eliminate (for individual investors) third party orders entered by a client's brokerage to be executed in whole or in part. ECNs network major brokerages and traders so that they can trade between themselves without having to go through a middleman. The advantage of an ECN is that it displays orders in real time, whereas on the NYSE, most investors are limited to only viewing the best bid and ask prices.

There are several variations of ECNs in the market, each differing slightly. Here are some of the more popular ones and a summary of their basic characteristics:

Instinet
Instinet was the first ever ECN, founded in 1969. It was originally a way for brokerages to display bid and ask prices for practically every stock in North America and abroad and was first used by institutions to transact with each other. Today it also includes a select group of smaller brokerages. Instinet is used to execute a large proportion of orders on Nasdaq and is primarily entered by market makers. Because of this exclusive access many of the large block orders on Nasdaq stocks are traded through Instinet. More recently Instinet has tried to level the playing field by lowering access fees and allowing individual investors and small firms to access its orders.

Island
This ECN is popular among smaller traders because everyone placing an order on Island is on equal ground. Island puts all active orders in the "Island Order Book," which lists all of the bid and ask orders for each individual stock. Island is considered very easy to use and relatively inexpensive compared to other ECNs. In short, Island allows anybody to access the Nasdaq in a way that was not possible in the past without becoming a member firm.

SelectNet
This electronic system is primarily used for trading between Market Makers. SelectNet is known as a negotiable system, which means that market makers may or may not execute your order immediately, as on other ECNs. Although, they are required to execute immediately if the order is at the advertised price and it appears on the market maker's screen. SelectNet is popular among traders because orders can be preferenced, which allows a trader to isolate a particular market maker to trade with. This is advantageous because traders can target market makers who are active in the stock he/she wants to trade. This way the trader will get immediate attention, which usually results in a faster execution.

There are a few others that are used to facilitate trading on Nasdaq stocks. One being SOES, which we will discuss next, but there are also other ECNs offered by Bloomberg, Terra Nova, and others.

Next: Small Order Execution System (SOES)

Table of Contents
1) Introduction
2) The Nasdaq Versus the NYSE
3) The Role of a Specialist
4) The Role of a Market Maker
5) SuperDOT System
6) Electronic Communication Networks (ECNs)
7) Small Order Execution System (SOES)
8) Level I, II, and III Access
9) Conclusion and Resources
10) Test Your Trading/Market Knowledge

Printer friendly version in PDF format
Need help with PDF files? "

http://www.investopedia.com/university/electronictrading/trading5.asp

 

[JTrader]

Electronic Communications Networks Hurting the Major Exchanges
Day Trading Blog

« Wall Street Jargon | Main | Day Trader's Resource Page »
From Alvaro Oliveira,
Your Guide to Day Trading.
FREE Newsletter. Sign Up Now!


July 24, 2004
Electronic Communications Networks Hurting the Major Exchanges
Trading volume is declining on the NYSE and Nasdaq due to competion from Electronic Communications Networks (ECNs). One such network is Chicago-based Archipelago Exchange, also known as ArcaEx, through which its customers can trade more than 8,000 different equities. Whereas the NYSE and Nasdaq use intermediaries to link buyers and sellers, ArcaEx uses a process known as "sweeping" -- essentially searching other exchanges and ECNs to execute orders, often bypassing the major exchanges. Read more...


http://daytrading.about.com/b/a/101019.htm

 

[JTrader]

Stock Market Basics

--------------------------------------------------------------------------------


How stocks are traded on the New York Stock Exchange (NYSE)
Stocks that are bought and sold on the NYSE and the American Stock Exchange (AMEX) use an auction system.

Picture this: scattered throughout the huge floor of the exchange are trading posts, each manned by a trader called a "specialist". Each specialist conducts the stock trading for one big company, such as IBM, or maybe a number of companies that have lighter trading volume. Each trading post has a computer terminal on a pedestal, and is surrounded by "floor brokers" representing the big brokerage houses (or even their own accounts).

Each floor broker wears a different color jacket so that the specialist knows which firm the he represents. At 9:30 AM, the bell rings and the people with the colored jackets start yelling what their clients want to buy and the price they are bidding, and others yell out what their customers have to sell, along with the price they are asking. Each, of course, wants to get the best price they can. With all the noise, many have learned to communicate with hand signals.

The specialist acts as a middleman, matching buyers with sellers. If there is a seller and no buyer, the specialist will give a bid price, offering to purchase the shares for his own or his company's account. As each trade is completed, he enters the numbers on his computer terminal and the trade is instantly transmitted around the globe. Throughout the day from their offices above, the floor brokers in their colored jackets receive fistfuls of orders with new trades to execute.

The specialist doesn't have to move the stock price up or down. When more shares are offered for sale than there are orders to buy, the buyers begin offering less, and the share price moves down.

When there are more buyers than sellers, the buyers are competing for the limited shares being sold and so quickly agree to pay the higher prices that the sellers are asking. The sellers, sensing this, keep raising their asking price and so the share price moves up.

Not all the trades happen on the floor of the exchange. In fact, only about 20% are actually auctioned on the floor. A trader in an office above watches the trading on his computer screen, matching buyers and sellers of the thousands of smaller transactions flowing in all day long.

Just because a stock is listed on the NYSE or the NASDAQ or the AMEX doesn't mean every share is bought and sold there. Mutual Funds do much of their trading among themselves and with other institutional investors directly through electronic computer networks (ECNs), the largest being Instinet. And many investors trade 24 hours a day directly with each other through ECNs such as Island and Archipelago. These ECNs now handle over 35% of the NASDAQ trades. Brokers will often route your order through a regional exchange such as the Boston or Cincinnati exchanges, who also charge a lower fee, or spread.

But no matter where your stock is physically traded, every transaction is reported to the big exchange, and the daily volume reflects every trade.


http://www.stocks-investing.com/stocks-the-nyse.html

 

[Kephaleon]

Interesting reading, thanks.