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ECNs Hold Talks About Connecting Their After-Hours Systems

NexTrade, Archipelago, Datek's Island, Reuters' Instinet and others hope connecting their systems will boost liquidity.

Several electronic communication networks -- those pesky electronic trading systems that want to make robust after-hours trading a

reality -- are talking to each other about connecting their systems so that investors on one system can access orders on others, according to three people familiar with these discussions.

Such an agreement could boost liquidity, which is a key concern about after-hours trading.

One of these people,


President John Schaible, said he had contacted several other ECNs and alternative trading systems by letter about two weeks ago regarding the idea of an intermarket trading system. NexTrade is a small player based in Clearwater, Fla.

Two other people said that discussions during the past week about connections have included some of the large trading systems like



Datek's Island


Reuters' Instinet


Spear Leeds & Kellogg's REDIbook

. (


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Donaldson Lufkin & Jenrette


recently agreed to buy stakes in REDI.)



President and Chief Executive Arthur Pacheco says he was approached about a week ago by REDI, which said it was representing a consortium, about creating a central place where all the prices can be seen. "Competitively I feel that if it's going to happen I have to participate," Pacheco says. "There will be less opportunity for abuse if you get to see all the prices in one place."

The two other people also said that the

Chicago Stock Exchange

, which announced a late-day session last week, had been contacted.

The discussions between the large trading systems revolved around getting together a document that the other after-hours players would sign regarding connectivity and rules of the game. Instinet, Spear Leeds and the Chicago Stock Exchange couldn't be reached for comment.

So while it's not clear whether there's one effort under way or overlapping efforts, the people involved appear to have similar goals: Connect the various pools of orders to increase liquidity and agree on some fair-play tenets for after-hours trading before the regulators and exchanges do it for them.


New York Stock Exchange

and the

National Association of Securities Dealers

, which runs


, decided early in the summer that they'd

hold off on after-hours trading, taking time to study the issues.

But the ECNs and alternative trading systems aren't waiting. After-hours trading moved into the spotlight this week when


Wednesday began a 6 p.m. to 8 p.m.

trading session for online customers of




brokerages. Datek began letting customers trade on its Island ECN from 4 p.m. to 5:15 p.m. in mid-July.

Some concerns cited about these -- and other similarly planned sessions -- have included volatility and lack of liquidity. Connecting the systems could help address such concerns, these people say.

MarketXT declined to comment on whether it was part of any discussions. Island President Matthew Andresen didn't comment directly on the agreement but says he's open to such connections.

"Connecting ECNs is something that Island obviously is all about. We from the beginning have been trumpeting and trying to bring about price discovery in the markets," he says, adding that Island counts among its subscribers many ECNs. "Because Island and Instinet together account for 95% of the ECN volume, the question really becomes not whether the fringe ECNs who don't have liquidity tie in, the question becomes whether Instinet will share their information."

NexTrade's Schaible says he initiated discussions with the

Securities and Exchange Commission

about a possible intermarket trading system several months ago. Then he sent out letters to some different players, whom he declined to name.

"The discussions were to be limited first to establishing common links," Schaible explains. But eventually the system could become similar to the

Nasdaq Selectnet

system that Nasdaq market makers and ECNs use to communicate with each other.