SEC Approves Plans for Archipelago Exchange
The San Francisco-based Pacific Exchange regional stock market and Archipelago, an electronic trading network, on Thursday won U.S. approval to form an automated stock exchange that will compete with the New York Stock Exchange.
The Securities and Exchange Commission approved the joint venture to create the Archipelago Exchange, which will become the first fully electronic U.S. stock exchange trading in all U.S. stocks. It plans to open for trading by February, Archipelago Chief Executive Gerald Putnam said.
Chicago-based Archipelago’s move comes as the Nasdaq Stock Market plans to start trading in NYSE-listed stocks by the end of the year. Island ECN, an Archipelago rival, also has applied to become an exchange.
The SEC, in a 3-0 vote Thursday, approved the formation of what an SEC spokesman said is the first U.S. stock exchange since the Cincinnati Stock Exchange was created in 1976. Archipelago, now the fourth-largest electronic trading network, will operate the exchange, and the Pacific will police the new market.
The Pacific, which closed its Los Angeles trading floor this year, also will close its San Francisco stock trading floor once the new exchange opens. The Pacific will continue to trade options contracts at its San Francisco site.
Archipelago’s goal is to capture 20% of the volume in NYSE-listed stocks and 20% of Nasdaq-listed shares in two years, Putnam said. Currently, Archipelago trades about 2% of NYSE shares and 10% of Nasdaq shares, he said.
Some analysts expressed doubt that Archipelago will capture much of the NYSE’s market share. “The world is littered with the carcasses of markets that have tried to go up against the NYSE and failed because they didn’t have enough liquidity,” said Georgetown University professor James Angel.
The Archipelago Exchange will seek to offer investors more speed, order visibility and price competition than other U.S. exchanges, Archipelago Executive Vice President Joseph Lombard said.
Investors will route orders through a broker, and these orders will be electronically matched with others in the market. Archipelago will display online all pending orders for a particular stock.
Archipelago Exchange will be the first for-profit U.S. exchange, unlike other exchanges that are not-for-profit membership organizations. Nasdaq is preparing to become a for-profit company.
As an exchange, Archipelago expects to enjoy a more prestigious status that could prove attractive to foreign clients. It also will gain direct access to the Intermarket Trading System, through which brokers route orders for NYSE-listed stocks to different markets.
