Abstract
Archipelago began reporting trades and quotes to the Pacific Stock Exchange in 2002 for NYSE-listed securities and in 2003 for NASDAQ-listed securities. These events mark the time that Archipelago began migrating stocks from its ECN platform to the exchange platform, thereby becoming a stand-alone exchange. We examine the impact of becoming a stand-alone exchange on execution quality and market share of Archipelago to gain insight into its ability to compete for order flow in NYSE and NASDAQ stocks. We find that the change has a positive effect on Archipelago's execution quality for NYSE stocks, while it has a negative effect for NASDAQ stocks. A possible explanation is that Archipelago lost the large pool of liquidity that SuperMontage provided when it became a stand-alone exchange, and that loss may offset any gain associated with having exchange status. Overall, exchange status helped Archipelago slowly make headway in the NYSE-listed securities arena.
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