So Much for Fragmentation

摘要

With the merger of Archipelago and the NYSE and the acquisition of Instinet (Inet) by Nasdaq, the overcrowded ECN field of five years ago suddenly looks smaller. Much smaller. With the disappearance of Inet and Area, the field of seven to 10 ECNs circa 1999 is down to only Bloomberg's TradeBook and a number of much smaller entities (e.g., Track, Attain, Nextrade, etc.) that today have little impact. So much for fragmentation. But what will this mean for the markets? And is the era of intermarket competition dead? There are two schools of market theory: order competition versus intermarket competition. Order competition assumes a centralized exchange predicated on orders meeting in a centralized environment aggressively competing for best price. The intermarket competition theory assumes multiple exchanges competing with each other and offering order flow incentives to attract liquidity.