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Fidelity, Schwab plan ECN
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July 21, 1999: 2:58 p.m. ET
Boston fund giant, Schwab among four partners in new ECN venture
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NEW YORK (CNNfn) - Fidelity Investments, Charles Schwab & Co. and two other brokerage and financial services firms announced plans Wednesday for a new electronic communications network.
The agreement, which includes Donaldson, Lufkin & Jenrette and Spear, Leeds & Kellogg, will allow the companies to create a new trading platform to pool their orders.
"The key is this positions us to take advantage of this technology and better serve our customers," said Robert Mazzarella, president of Fidelity Brokerage Services Inc.
An electronic communications network, or ECN, is a computerized trading network that matches buy and sell orders.
The four companies plan to build the ECN, which hasn't been named, on Spear, Leeds & Kellogg's existing ECN, called REDIBook. REDIBook is the third-largest of nine ECNs.
The other ECNs are: Instinet, Island System, Archipelago, Bloomberg Tradebook, Attain System, BRUT, Strike System and Trading System, according to the U.S. Securities and Exchange Commission.
One of the goals of the new venture is to capitalize on extended trading hours, said Lon Gorman, president of Schwab Capital Markets & Trading Group.
The board of the Nasdaq voted in May to extend trading hours. The New York Stock Exchange approved a similar plan, then in June decided to postpone the later hours until next year.
"We would hope this would be a key platform for providing after-hours services," Gorman said. Particularly in California, investors often don't have time to follow the market before it closes at 1 p.m. PT.
Some professional money managers have questioned whether later trading hours would offer enough liquidity for traders. Gorman said the new ECN would become a venue that would give buyers and sellers better opportunities for finding good prices on stocks.
"The better the opportunity you have for price improvement," Gorman said.
Gorman said another goal in the new venture is to become the largest ECN.
"The Internet is bringing a whole new kind of customer to bear," Gorman said. "It would seem to us that many of those customers don't differentiate between daytime and nighttime."
ECNs once were open only to institutional investors, but after a change in trading rules they became open to retail investors. The rule changes have enabled a new generation of day traders to capitalize on tiny changes in the prices of stocks.
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