The new market will enable all buyers and sellers, including broker-dealers and market makers, to meet electronically. Participants and investors will benefit from the transparency, speed, price improvement, liquidity and enhanced regulatory structure of this new, all-electronic marketplace. Additionally, corporate issuers will have the opportunity to list their shares on this technologically advanced exchange. The new market will be fully integrated into the National Market System, and will compete on equal footing with major exchanges and other national marketplaces such as the New York Stock Exchange, the American Stock Exchange and the Nasdaq Stock Market.
"The technical flexibility of Archipelago combined with the regulatory oversight of an exchange establishes the first totally electronic stock exchange in the United States," said Gerald D. Putnam, chief executive officer of Archipelago. "America's markets have historically been the world's deepest and most liquid, due in large part to our willingness to embrace change, encourage competition and provide regulatory fairness to customers. This combination will provide a low-cost, fair and efficient marketplace for liquidity providers and investors."
"The new market will combine the best of current technology with the latest thinking on market structure to create a low-cost, highly efficient market now," said Philip D. DeFeo, chairman and CEO of the Pacific Exchange. "Our partnership with Archipelago will be a force for positive change in the financial markets, and is a major step forward as we move to implement the restructuring and demutualization proposals approved overwhelmingly by Pacific members in 1999. Archipelago's business model is consistent with our plan to transform current membership roles to reflect changing markets."
Archipelago will function as the equity marketplace of the Pacific Exchange once the parties have reached a definitive agreement and the transaction is consummated, subject to the approval of the U.S. Securities and Exchange Commission. The entity will operate under the self-regulatory authority of the Pacific Exchange. As part of the transaction, the Pacific Exchange will take an equity stake in Archipelago and will join Archipelago's board. Financial terms of the transaction were not disclosed.
Archipelago was formed in December 1996 with software developer, Townsend Analytics. It is one of the original four ECNs approved in January 1997 by the U.S. Securities and Exchange Commission (SEC). Since its inception, Archipelago has offered subscribers outbound order preferencing to effectively create a national limit order book for Nasdaq stocks. Its leading-edge technology, open architecture and innovations, such as sweep functionality based on a proprietary algorithm, facilitate the best execution for investors.
Archipelago is also the only ECN with major investors in both the institutional and retail financial services sectors. The Archipelago trading system provides investors fast, cost-efficient and anonymous access to the market. Its average daily volume more than tripled in 1999, reaching over 50 million shares per day in February 2000. Founded in 1882, the Pacific Exchange today trades more than 2,500 stocks, bonds and other securities issued by publicly traded companies, as well as options on more than 850 stocks. The Pacific Exchange is the fourth most active stock exchange in the country, and the third largest stock options exchange in the world. The Pacific trades the most active stocks and bonds listed on the New York and American stock exchanges, as well as many emerging growth companies. Equities volume on the Pacific Exchange averages 23 million shares a day. Options volume averages nearly 500,000 contracts per day.
The Pacific Exchange has a history of innovation. It was the first exchange in the world with electronic order routing, execution and reporting systems; the first to develop net clearance and settlement systems; and the first exchange in the U.S. to demutualize its equities business.
