Archipelago (ARCA, TNTO, ARCHIP)
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Many electronic day trading firms do not have access to ECN Archipelago.
As is the case with all ECNs, the broker-dealer must subscribe.
In some cases, these broker-dealer firms do not subscribe to
ARCA. This can be a disadvantage to a trader unless he or she has a
way to get around the problem of not being able to use certain ECNs
in specific situations (see Chapter 5). Again, not all electronic trading
firms are equal.
The ECN Archipelago has advantages and disadvantages. Let us
examine the advantages first. Suppose you have stock you want to
sell on the bid side. Archipelago acts like a bot (computer sequenced
automatic robot program) and will seek out the market maker on the
bid. It poles the market maker, and if that market maker cannot fill
the order, it moves to the next most active market maker right down
the line. Archipelago will also go to the ECNs to complete your order
command. Archipelago will hit market makers and ECNs to complete
your order. If Archipelago cannot match the order on its own
book, it will send it to the national market, which connects to
Island, Instinet, and SelectNet. This means an order that would normally
be rejected (i.e., would sit in the book) is executed as fast as
possible. Archipelago will also fill you in round lots, and Archipelago
is easy to use. For example, if you want to join either the bid or
the ask, you simply enter your price on the bid when buying and on
the ask when selling. Another advantage of Archipelago is that
when ECNs like BRUD or REDI are stopping the market, you can hit
them. Electronic firms that do not subscribe to Archipelago may
not be able to hit them. If you are on the bid or the ask, you can be
hit only by someone who preferences you; this can be an advantage.
One would think that an ECN that worked until your order was filled
would be very advantageous, but the mechanics that allow Archipelago
to perform this task are also disadvantageous. Let's now
look at the disadvantages of Archipelago. When Archipelago goes to
the market maker to fill the order, it uses what is called a SelectNet
preference to show orders to the market makers. The market maker
has 20 seconds to accept the offer. This 20-second period is a major
disadvantage because a lot can happen in those 20 seconds. If the
order is not completely filled, it will keep on trying to fill it until
the order is totally complete. The problem is that the buyer takes
the number of shares he or she wants. Chapters 5 and 6 show specific
examples of how to use the Archipelago ENC when routing
under specific conditions.
Currently, about one-third of the volume on Archipelago is generated
by broker-dealers trading their own accounts, a third by
institutions, and the rest by private customers of broker-dealers
and individual traders.
Many electronic day trading firms do not have access to ECN Archipelago.
As is the case with all ECNs, the broker-dealer must subscribe.
In some cases, these broker-dealer firms do not subscribe to
ARCA. This can be a disadvantage to a trader unless he or she has a
way to get around the problem of not being able to use certain ECNs
in specific situations (see Chapter 5). Again, not all electronic trading
firms are equal.
The ECN Archipelago has advantages and disadvantages. Let us
examine the advantages first. Suppose you have stock you want to
sell on the bid side. Archipelago acts like a bot (computer sequenced
automatic robot program) and will seek out the market maker on the
bid. It poles the market maker, and if that market maker cannot fill
the order, it moves to the next most active market maker right down
the line. Archipelago will also go to the ECNs to complete your order
command. Archipelago will hit market makers and ECNs to complete
your order. If Archipelago cannot match the order on its own
book, it will send it to the national market, which connects to
Island, Instinet, and SelectNet. This means an order that would normally
be rejected (i.e., would sit in the book) is executed as fast as
possible. Archipelago will also fill you in round lots, and Archipelago
is easy to use. For example, if you want to join either the bid or
the ask, you simply enter your price on the bid when buying and on
the ask when selling. Another advantage of Archipelago is that
when ECNs like BRUD or REDI are stopping the market, you can hit
them. Electronic firms that do not subscribe to Archipelago may
not be able to hit them. If you are on the bid or the ask, you can be
hit only by someone who preferences you; this can be an advantage.
One would think that an ECN that worked until your order was filled
would be very advantageous, but the mechanics that allow Archipelago
to perform this task are also disadvantageous. Let's now
look at the disadvantages of Archipelago. When Archipelago goes to
the market maker to fill the order, it uses what is called a SelectNet
preference to show orders to the market makers. The market maker
has 20 seconds to accept the offer. This 20-second period is a major
disadvantage because a lot can happen in those 20 seconds. If the
order is not completely filled, it will keep on trying to fill it until
the order is totally complete. The problem is that the buyer takes
the number of shares he or she wants. Chapters 5 and 6 show specific
examples of how to use the Archipelago ENC when routing
under specific conditions.
Currently, about one-third of the volume on Archipelago is generated
by broker-dealers trading their own accounts, a third by
institutions, and the rest by private customers of broker-dealers
and individual traders.