Investments, tenth edition

  Electronic Communication Networks (ECNs) 

  

Electronic communication 

networks allow participants to post market and limit orders over computer networks. The 

limit-order book is available to all participants. An example of such an order book from 

NYSE Arca, one of the leading ECNs, appears in  Figure 3.4 . Orders that can be “crossed,” 

that is, matched against another order, are done automatically without requiring the inter-

vention of a broker. For example, an order to buy a share at a price of $50 or lower will be 

immediately executed if there is an outstanding ask price of $50. Therefore, ECNs are true 

trading systems, not merely price-quotation systems. 

 ECNs offer several attractions. Direct crossing of trades without using a broker-dealer 

system eliminates the bid–ask spread that otherwise would be incurred. Instead, trades are 

automatically crossed at a modest cost, typically less than a penny per share. ECNs are 

attractive as well because of the speed with which a trade can be executed. Finally, these 

systems offer investors considerable anonymity in their trades.