Internet  |  MAR 2004

DAT To The Future by David Penn

V. 22:3 (17-23): DAT To The Future by David Penn Electronic trading has come a long way in the six years since the SEC’s display rules of 1997. How have individual traders continued to take advantage of a revolution in access and transparency? In many ways, the evolution of directaccess trading (DAT) is a classic David and Goliath tale. While many rightly point to the explosion in technological capability — from PCs and the Internet to sophisticated order-routing systems exploiting intelligent networks — the primary driver of the electronic revolution has been the efforts by the oft-abused and taken-for-granted retail trader to, quite frankly, get an even break against the powerful vested interests of Wall Street and the broader financial world. Doubt it? Consider this excerpt from former Securities and Exchange Commission (SEC) chairman Arthur Levitt’s book, Take On The Street: Beyond confirming the dealer collusion that many had long suspected, the investigation brought into sharp focus a basic flaw that had developed: Nasdaq had become a two-tiered market. One tier, the official Nasdaq dealer network with its wide spreads, was the sucker’s market for small orders, mostly placed by individual investors. The other tier was an ECN [electronic communications network] called Instinet, majority-owned by Britain’s Reuters Group PLC. Because spreads were narrower on Instinet, it was the market of choice for mutual funds and other institutional investors. But it was off limits to individuals.

by David Penn