Will the introduction of ARCAex, bring about a demise to the specialist system as we know it? Many think so. Here is a good article on the subject: http://www.windowsfs.com/custandpart/spring2001_Archipelago_Exchange.asp
It seems to me one of the crucial factors will be how the ARCA book is displayed on the screen. Can I just enter a ticker in RealTick and get it along with NYSE and regionals? If the whole ARCA book for listed will show on a Lev II screen in realtime, that spells big trouble for NYSE, particularly their so-called open book. Goldman Sachs has an interest in ARCA, so generating enough liquidity to make it worthwhile should not be a problem. It is just a fact of life that floor-based trading will disappear in the next few years. It's already happening in europe, the chicago commodity exchanges are fighting it but recognize it as inevitable. NYSE may be the last holdout but being able to execute against a transparent book is just too attractive.
If ARCA can figure out how to trade listed stocks as efficiently as Island, I suspect they will attract volume. Personally, I just don't like the thought of having a middleman - there is nothing as fair as an open central limit book you can execute against with no-one in between. At least in my case, my trades don't indicate that I get a significant price improvement on the nyse.
What's going to be different about arca and listed stocks? Any other links that explain it? As it is now I see, and sometimes use, arca and island on Level 2 on listed stocks using Realtick. thanks, Mike
The primary difference Archipelago will have vs ECN's like Island is it will become a self-regulated exchange. This lets it self-govern itself and participate directly in the Intermarket Trading System (ITS), and the National Consolidated Quote System (NCQS). Another advantage it will have is the backing of major players including, Merrill Lynch, Goldman Sachs, and J.P. Morgan Chase. Townsend Analytics (Realtick) is also a partner. Although the exchange will be completely electronic, when dealing with listed securities they have to go through the ITS. This currently has a 30-second accept/reject rule for participants which can discourage people from routing that direction. So even though they may offer the best price, who wants to risk 30 seconds to try and get it. Until this rule is abolished (if ever), they would seem to be at a disadvantage to the NYSE when trading in listed stocks. Island has rejected being part of the ITS because of the 30-second rule, and the rule that requires you to direct order flow out of your book if a better price exists on another exchange. Island currently trades only within its own book. Island is also considering Exchange status as well in the near future. Here are a few more links on the topic: http://www.wallstreetandtech.com/story/mag/WST20011210S0015 http://www.latimes.com/business/la-000085109oct26.story http://www.businessweek.com/technology/content/jun2001/tc20010627_952.htm
Those articles are very informative. Could someone explain to me the routing options on NYSE now for a RealTick user and how they will change with ARCA? Specifically, how do you execute against the various bids/offers other than NYSE? And if I improve the bid/offer using Island, do the trade through rules require that my order be hit/taken if no one matches me? My observation is that ecn bids/offers are pretty much ignored, but I may not understand what is happening.
I look at the ecns as only trading internally on their own books on the nyse w/ RT. If isld or arca has the best and I want it I hit/lift the price by routing through the ecn. I don't think we have access to the other exchanges w/ RT. I've been wrong before though. Mike