MARKET SAVVY : Savvy Confidential: A Briefing for Investors : Merrill Buys 14% of Archipelago Network

Merrill Lynch & Co. said Thursday it bought a 14.3% stake in the electronic trading firm Archipelago. The leading U.S. brokerage is spending about $30 million, people familiar with the negotiations said.

Merrill joins Goldman Sachs Group Inc., J.P. Morgan & Co. and others as investors in Archipelago, which has applied to the Securities and Exchange Commission to become a for-profit stock exchange and compete head-on with the New York Stock Exchange.

The investment is Merrill’s fourth recent bet on electronic stock-trading networks, which handle one-third of Nasdaq Stock Market volume.

“Everyone’s investing in multiple plays, because no one has a clue how trading will turn out,” said Bill Burnham, a general partner at Softbank Capital Partners, a venture capital fund. Softbank itself has been spreading its bets around.

Low-cost electronic trading networks, known as ECNs, anonymously match buy and sell orders and are becoming more popular among brokerages and big investors. Market makers--including Merrill--that risk their own capital to buy and sell shares still account for most Nasdaq trading. Yet ECNs may handle half of Nasdaq volume within two years, analysts and ECN executives say.

Merrill’s investment bolsters Archipelago’s credibility, said Gerald Putnam, the ECN’s chief executive. “Merrill is like apple pie to U.S. investors,” he said.

Archipelago was among the first of the new-generation ECNs, formed in January 1997 as the SEC required Nasdaq market makers to display their best prices. The new rules gave ECNs a national outlet for their orders.

Archipelago, which is considering an initial stock sale for next year, handles about 22 million shares a day. It is the fifth-busiest electronic network, according to figures supplied by electronic trading companies.

Merrill also owns stakes in OptiMark Technologies Inc., which trades New York Stock Exchange shares through the Pacific exchange; Primex Trading, an electronic auction market planned for 2000; and Brut, an electronic network introduced last year.

Merrill’s shares slipped 81 cents to close at $75.13 on the NYSE.