Like other ECNs, Archipelago, which trades more than 100 million shares daily, is best at handling Nasdaq stocks, where Buy and Sell orders are likely to match up. To smooth over the rough spots, ECNs are trying to differentiate themselves. Archipelago hopes to reap big benefits from stock exchange status. Unlike ECNs, which are regulated by the National Association of Securities Dealers, exchanges regulate themselves. Not surprisingly, Archipelago's rivals are downplaying the benefits of the marriage with Pacific.
Skeptics say they prefer the auction-style exchange because it keeps markets more orderly.
But others praise Archipelago's model of searching all markets for the best price. But they're so open, linking to so many other ECNs, that it's been a boom for them. Currently, a combined Archipelago-Pacific trades 6 percent of all U.S. stocks, he notes, adding that Archipelago trades more than four times as many shares as the Pacific Exchange. A completed merger would also help the ailing Pacific, which lost money in 1999 and has seen the value of a membership seat drop since 1998. The exchange has been simultaneously trying to add an electronic-trading component and cutting costs to win more business.