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Making sense of evolution

The New York Stock Exchange's historic deal with electronic rival Archipelago and Nasdaq's acquisition of rival I-Net dramatically reshape US cash equities trading. But what do they mean for OTC and listed trading, regional exchanges, and users now that the SEC's controversial Reg NMS has been passed? Peter Koh reports.

ELECTRONIC TRADING SYSTEM Archipelago used to describe the New York Stock Exchange as a dinosaur – it believed its own system threatened the 212-year-old NYSE trading floor with extinction. But by merging with a member of the rival for-profit electronic species, the NYSE, though not necessarily its trading floor, might have blazed a crafty evolutionary trail. NYSE's surprise announcement and Nasdaq's acquisition of I-Net, which came just two days later, changes the US cash equities trading environment as dramatically as the meteor that wiped out the real dinosaurs 65 million years ago. The NYSE-Archipelago and Nasdaq-I-Net mergers consolidate liquidity in Nasdaq-listed and NYSE-listed stocks into just two significant market centres, compared with five less than a year ago.

With only two serious players, superficially at least the US cash equities trading environment seems to be back where it was in 1997, before the introduction of the SEC's order-handling rules, which led to the proliferation of electronic communications networks (ECNs) and alternative trading systems (ATSs). But the momentum behind electronic trading among broker dealers and investment managers and the SEC's controversial Regulation National Market System (Reg NMS) mean that the cash equities trading environment is now fundamentally different.

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