ECN (acronym for Electronic Communication System) is a system whose purpose is to facilitate eliminate third party orders entered by a client’s brokerage to be executed in whole or in part. ECNs network major brokerages and traders so that they can directly trade each others. The key feature of an ECN is real time order diplaying, not limited to best bid and ask prices.
The main variations of ECN available today are INSTINET and SELECTNET. Here follow their main characteristics:
Instinet, founded in 1969. The first ever ECN system is used mainly by market makers. Most of Nasdaq orders are entered via Instinet. It has a very exclusive access. But very recently access fees have been slightly lowered to let more users access the system.
This system is popular among (and also used primarly by) market makers. SelectNet is a negotiable system, which means that market makers may or may not execute your order immediately although they have to to execute it if the order is at the advertised price and it appears on the market maker’s screen.
Among the most popular we have: