Schwab, Fidelity to Join Launch of ECN

Bloomberg News

Is there room for yet another electronic stock market?

Charles Schwab Corp., the biggest Internet broker, and Fidelity Investments, the No. 1 mutual fund company, joined two other securities firms Wednesday in plans to launch an electronic network to enter the fastest-growing part of the stock-trading business.

The venture, whose partners also include online broker DLJDirect and market-maker Spear Leeds & Kellogg, will compete with rivals such as Island, owned by Datek Online; Instinet, owned by Reuters; and Bloomberg's TradeBook.

ECNs, or electronic communication networks, simply match investors' buy and sell orders rather than channeling them to Nasdaq dealers or to exchanges. ECNs have taken an increasing share of Nasdaq trading--now about 30% of the total.

But the field is getting crowded. Dean Eberling, analyst at Putnam Lovell de Guardiola & Thornton, views the Schwab/Fidelity ECN as a "hedge" for its owners against ECNs' growing market share and a way to help pick a winner before an inevitable consolidation.

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