Another innovation in securities trading
are
electronic
communications networks (ECNs),
which complete trade orders
electronically, from start to finish. All orders placed with the
ECN are part of an electronic record. As each new order is entered,
it is checked automatically against existing orders to see if
there is a match — a buyer offering what a seller is asking.
If so, the system executes the deal on the spot, without a specialist
or market maker.
Because all ECN orders are posted, investors
have a clear sense of the market value of a stock. Yet because
the matches are anonymous, large institutional investors can trade
without attracting attention or fostering speculation about their
motives. What’s more, ECN networks make it easy to trade
after-hours, when other markets are closed. The only drawback
may be that if trading volume is limited, prices may be higher
than during exchange hours.
Although it’s completely electronic,
trading on an ECN is accessible exclusively to its members, as
it is on a traditional exchange. In fact, some ECNs have applied
for exchange status, which, if granted, would make them eligible
to trade stocks listed on the NYSE, the AMEX, and other exchanges.
But most experts agree that it’s too soon to predict what
changes ECNs may ultimately mean for stock markets as a whole.
