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Archipelago gets partners
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January 7, 1999: 12:58 p.m. ET
E*Trade, Goldman Sachs each take 25% stake in alternate trading system
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NEW YORK (CNNfn) - E*Trade and Goldman Sachs are buying ownership stakes in Archipelago, an alternate trading system within the Nasdaq marketplace.
The online broker and financial institution have each purchased a 25 percent share of the company, which is one of nine such firms permitted by the Securities and Exchange Commission (SEC) to electronically match transactions outside the exchange trading system. Financial terms of the deal weren't available.
Founding partners Virago Entertainment and Townsend Analytics each will retain 25 percent ownership of Archipelago.
Archipelago is known in the industry as an electronic communication network, or ECN. Since the Securities and Exchange Commission (SEC) passed regulatory changes to allow alternative trading systems in 1996, these companies have played a growing role in the equities trading market.
ECNs allow orders to be routed directly and displayed on the floor of an exchange or the Nasdaq Stock Market without the need for an intermediary, and assuring order anonymity.
Currently about 25 percent of all shares traded in Nasdaq stocks and 5 percent of all NYSE shares are handled by ECNs.
"ECNs are clearly a significant and growing segment of today's financial services market," said Duncan L. Niederauer, a managing director at Goldman Sachs. "Our investment in Archipelago demonstrates Goldman Sachs' continued commitment to provide our clients with the broadest array of liquidity services."
ECNs are part of the electronic backbone that permitted the emergence of day traders, investors who make a practice of holding stocks for only hours at a time.
However, it is unlikely that the interest from E*Trade and Goldman Sachs will affect day trading in the short term, because approximately 4,000 serious traders and brokers already make use of Archipelago.
Instead, the main thrust of the deal is to strengthen E*Trade's position as a provider of high-tech brokerage services, the company said.
"Ultimately, Archipelago is another way to improve the quality of service," said Christos Costakos, E*Trade chief executive officer and chairman-elect.
"Archipelago's trading system will provide E*Trade with yet another opportunity to serve our customers who derive value from the speed, efficiency and anonymity associated with ECN-based trading.
E*Trade (EGRP) shares were up 5-11/16 at 60 in robust volume Thursday. 
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E*Trade
Goldman Sachs
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