ECNs, the Next Wave

To be sure, like many Internet start-ups, these electronic exchanges could disappear. Nasdaq has proved that it is willing to compete on price, rolling out plans to lower fees effective at the beginning of April. But the rise in trading on these no-namers brings up questions about how low trading fees can go, and, if faced with the right pricing pressure, how much a name can really carry an exchange.

"Fees matter," says Angel. "This is a business where a hundredth of a penny multiplied by millions of shares a day adds up real fast."

As the swallowing of Instinet and Archipelago show, this isn't the first time the established exchanges have had to fend off electronic competition. But the venture capitalists of the Internet start-ups have nothing to lose. BATS, for instance, is only expected to eat up $3 million to $4 million in costs over the next year -- a relatively minor gamble in the quest to build volume. The initial investors, who funded only $7.8 million at the onset of BATS, are willing to be aggressive.

The Nasdaq has shown signs of adapting to the dynamic industry. Last Thursday reports suggested the Nasdaq has been able to integrate Instinet's INET network faster than expected. That kind of progress could prove to be imperative if the exchange wants to ward off competition.

"In the end, the customers will decide whether the NYSE and Nasdaq will be skillful enough to appease traders and keep them from hedging their trading bets on the emerging, price-competitive liquidity pools like BATS," Repetto says.