CNBC to Buy Stake in Archipelago Network
The race among fledgling stock-trading networks to sign up marquee investors heated up Tuesday as Archipelago Holdings announced that financial news broadcaster CNBC has agreed to buy a 12.4% equity stake.
CNBC, a unit of General Electric Co., joins other big-name Wall Street players, including Goldman Sachs Group and Merrill Lynch & Co., to invest in the so-called electronic communications network.
Like other ECNs, Archipelago competes with the New York Stock Exchange and Nasdaq Stock Market by electronically matching investor buy and sell orders. ECNs make up about 30% of Nasdaq volume.
Archipelago’s previous outside investors have made no commitment to send orders through its system, said a spokeswoman for the Chicago company. However, all were financial firms that theoretically could help Archipelago by routing orders its way. CNBC “represents the public more than just the financial industry,” the spokeswoman said.
Many electronic trading systems, including those specializing in after-hours trading, are hoping to attract individual investor orders to their systems through partnerships that raise their visibility.
But Thomas Goldstein, dean of the Columbia School of Journalism, said the investment is a “potential conflict” for CNBC because it reports on Archipelago and its rivals.
Bill Bolster, CNBC president, said the investment will not affect coverage, adding that the network will disclose its ownership stake to viewers when discussing Archipelago. There is no commitment for CNBC to give publicity to Archipelago, such as by quoting Archipelago-traded stock prices on its shows, the two companies said.
“We want to--and we have to--cover all of the markets in order for our audience to be fulfilled with the data they need,” Bolster said.
Bolster pointed out that other news companies, such as Reuters, have equity interests in competing electronic trading systems.
Some early investors paid $25 million for their now-12.4% Archipelago stakes, according to a document filed with the Securities and Exchange Commission. The amount of CNBC’s investment was not disclosed.
Despite its well-known investors, Archipelago is only the fourth-largest of the nine ECNs, according to Meridien Research. Its 8.1% market share of ECN trading volume is dwarfed by the almost 50% share held by Instinet--another Archipelago investor--and the 20% share held by Island, a unit of Datek Online Holdings.
In another example of changes brought about by the electronic-trading revolution, Datek said that starting today, it will let clients trade stocks before the market opens, becoming the first Web broker to do so. Datek said it is opening trading at 5 a.m. Pacific time and extending its after-hours session to 5 p.m. PST.
