Electronic – but to what effect?

ECNs have sold themselves by claiming to offer fast, competitive, electronic execution. But research suggests only the electronic claim is true.

An analysis of publicly available data by Celent, a financial services technology consultancy, shows that ECNs’ average execution times for the five most liquid Nasdaq stocks is an appalling 15.5 seconds for small orders. Market makers, by comparison, execute the same trades in about one-tenth of the time, just 1.6 seconds. Surprisingly, ECNs performed faster than market makers when executing the least-liquid Nasdaq stocks, although their fill rates were far worse. ECNs achieved a fill rate for illiquid stocks of 30% or lower while market makers managed 80% or better.