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CNBC buying into ECN
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September 14, 1999: 11:13 a.m. ET
Financial news network becomes latest in long line of Archipelago investors
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NEW YORK (CNNfn) - CNBC will take a 12.4 percent stake in the electronic communications network Archipelago, the parties announced Tuesday. The financial-news network is the latest in a long line of high-profile investors in the Chicago-based ECN.
Archipelago, which filed Aug. 9 with the Securities and Exchange Commission requesting conversion to a for-profit stock exchange, already counts E*Trade Group Inc., Goldman Sachs Group Inc., J.P. Morgan and its mutual-fund affiliate American Century Cos., Merrill Lynch & Co. and the ECN Instinet among its investors.
"CNBC reaches out to millions of investors," Archipelago CEO Gerald Putnam said. "It basically rounds out our leadership."
Putnam pointed out that other media entities already own stakes in ECNs -- Reuters owns Instinet, and Bloomberg has its own ECN, Bloomberg Tradebook. But there would be a potential conflict of interest if Nasdaq and the New York Stock Exchange converted to for-profit exchanges competing with Archipelago, assuming the ECN is successful in its attempts to convert to exchange status. The SEC is unlikely to rule on Archipelago's application before the middle of next year.
Putnam downplayed that concern. "It would be ridiculous for CNBC to compromise themselves in reporting the financial news," Putnam said, adding that Reuters doesn't let its ownership of Instinet affect its coverage of financial news.
ECNs such as Archipelago are computerized quasi-exchanges that allow buyers and sellers of stock to meet without middlemen such as Nasdaq market makers, allowing for cheap execution of trades.
The ECN landscape is shifting rapidly, bringing after-hours trading to retail markets and forcing Nasdaq and the NYSE to consider conversion to public companies and extending their hours. Many Wall Street companies are scurrying to cover their bases, faced with what even ECN executives concede is an uncertain future.
"With this investment in Archipelago, we are participating in the ongoing evolution of the securities markets," CNBC President Bill Bolster said. Terms of the deal weren't disclosed. CNBC, which is owned by General Electric (GE), says it reaches 147 million homes worldwide, including 70 million in the United States.
"CNBC's business is to report financial news. I know they think we're big financial news; that's why they invested in us," Putnam said. "They're betting on our business model."
Seven ECNs -- Archipelago, Bloomberg Tradebook, Instinet, REDI, Strike, Island and MarketXT -- are expected this week to declare their intention to coordinate their after-hours trading, cooperating on providing quotes and linking access to their systems. The announcement, a declaration of cooperation rather than an outright corporate link or contract, may come as early as today. 
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