Island ECN

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Island ECN was one of the first electronic communication networks established for the trading equities in the United States. Founded in 1996 by Datek Securities veterans Jeff Citron and Joshua Levine, Island executed its first trades in 1997. [1]

History

Prior to Island, Citron and Levine worked together at Datek Securities (now TD Ameritrade). [2] Citron's background was in trading and Levine had experience with software development. While at Datek, they worked together to develop a software program called Watcher. Watcher was one of the first programs to provide real-time quote and electronic order capabilities for trading Nasdaq stocks through the Small Order Execution System (SOES). In 1995, Watcher was augmented with a system called "Jump Trades" that let users of Watcher skip the Nasdaq intermediary and trade directly with each other. [3] : 116 

On February 9, 1996, Levine announced the launch of Island. [3] : 117  Unlike the existing Instinet system, which still used human traders to match buy and sell orders, [3] : 110  matching on Island was fully automated. Island published an electronic feed called "ITCH" of all trades in the system, and used a protocol called "OUCH" to place orders. The data feed was accessible for free, an innovation over the tightly controlled data for traditional exchanges, and trading fees were significantly lower than on Nasdaq. [3] : 119–120 

One of its first customers was South Carolina-based Automated Trading Desk, an early algorithmic trading firm. Island grew quickly, accounting for almost half of all trades on Nasdaq's SelectNet system by late 1996, and handling $22.1 billion of transactions between July and September of that year. [3] : 122–124  By 1998, it had become the second-largest ECN, after Instinet, with 20% of the market. [3] : 154 

In October 1999, Citron was forced out at the behest of president Ed Nicoll, who was worried that Citron's connections to Datek—then under investigation by the Justice Department—could cause the firm legal issues. In December 2000, Island became a separate company from Datek, with Matt Andresen as CEO. [3] : 162–166  Island was an early hub for high-frequency trading firms like Getco and Tradebot in the early 2000s. [3] : 193–195 

Instinet acquired Island Exchange in 2002 and renamed the trading platform to Inet. [4]

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References

  1. ↑ "The Island ECN, Inc. History". Funding Universe. Retrieved 2014-04-14.
  2. ↑ "Datek Online Holdings Corp. History". Funding Universe. Retrieved 2014-04-14.
  3. 1 2 3 4 5 6 7 8 Patterson, Scott (2012). Dark Pools: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System. Crown Publishing. ISBN   978-0307887177.
  4. ↑ Bayot, Jennifer (June 11, 2002). "Instinet Plans to Acquire Island ECN for $508 Million in Stock". New York Times. Retrieved 2014-04-14.


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