ECNs

CFA Level III
#1

How you guys distinguish ECNs is Electronic Crossing networks or Electronic communications networks?

I find to distinguish it is pretty challenging.,…

Electronic Crossing networks

These are markets in which buy and sell orders are batched and crossed at a specific point in time. Crossing networks mainly serve institutional investors.

Pros

  • Both buyers and sellers avoid the costs of dealer services.
  • Traders avoid the effects a large order can have on execution prices (market impact).
  • It prevents information leakage.
  • Anonymity of traders is preserved.
  • Commissions are paid but are typically low.

​Cons

  • Participants cannot be guaranteed that their trades will find an opposing match (execution uncertainty).
  • Crossing networks provide no price discovery (the adjustment of prices to equilibrate supply and demand).

_ Electronic communications networks _

These are computer-based auctions that operate continuously within the day using a specified set of rules to execute orders. Electronic communications networks, such as Paris Bourse in France, are an example of automated auctions for equities.

In contrast to crossing networks, ECNs:

  • Operate continuously.
  • Provide price discovery.

Like crossing networks, ECNs:

  • Provide anonymity.
  • Are computer-based.
#2

ECN is reserved for the Electronic Communication Network.

#3

Both trading cost are low?

#4

Xing Networks are low trading cost. Don’t see why ECN s would be low cost. Af far as I can tell they are the widespread form of equity markets like the NYSE.

#5

Thanks, then what’s the advantage of ECNs? Price discovery?

#6

An crossing network is essentially a batched version of an ECN where prices and volumes are not shown.

You submit a (blind) buy order at XYZ price for 50,000 shares. During the batch session, the order is submitted and eventually filled if it finds another sell order for the exact same price for the exact amount of shares.

The advantage being annoymous trading, lower commissions and enhanced liquidity (unlikely to move the market).

Disadvantage is no price discovery, not gaurenteed to find a counter-party to your order.

#7

Thanks.