Island ECN was one of the first

electronic communication network An electronic communication network (ECN) is a type of computerized forum or network that facilitates the trading of financial products outside traditional stock exchanges. An ECN is generally an electronic system accessed by an electronic trad ...

s established for the trading

equities Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporation in proportion t ...

in the United States. Founded in 1996 by Datek Securities veterans Jeff Citron and Joshua Levine, Island executed its first trades in 1997.

History

Prior to Island, Citron and Levine worked together at Datek Securities (now

TD Ameritrade TD Ameritrade Holding Corporation was a stockbroker that offered an electronic trading platform for the trade of financial assets. The company was founded in 1975 as First Omaha Securities. In 2006, it acquired the United States operations of TD ...

). 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 The Nasdaq Stock Market (; National Association of Securities Dealers Automated Quotations) is an American stock exchange based in New York City. It is the most active stock trading venue in the U.S. by volume, and ranked second on the list ...

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. On February 9, 1996, Levine announced the launch of Island. Unlike the existing

Instinet Instinet Incorporated is an institutional, agency-model broker that also serves as the independent equity trading arm of its parent, Nomura Group. It executes trades for asset management firms, hedge funds, insurance companies, mutual funds a ...

system, which still used human traders to match buy and sell orders, 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. One of its first customers was

South Carolina South Carolina ( ) is a U.S. state, state in the Southeastern United States, Southeastern region of the United States. It borders North Carolina to the north and northeast, the Atlantic Ocean to the southeast, and Georgia (U.S. state), Georg ...

-based Automated Trading Desk, an early

algorithmic trading Algorithmic trading is a method of executing orders using automated pre-programmed trading instructions accounting for variables such as time, price, and volume. This type of trading attempts to leverage the speed and computational resources of ...

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. By 1998, it had become the second-largest ECN, after Instinet, with 20% of the market. 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 A justice ministry, ministry of justice, or department of justice, is a ministry or other government agency in charge of the administration of justice. The ministry or department is often headed by a minister of justice (minister for justice in a ...

—could cause the firm legal issues. In December 2000, Island became a separate company from Datek, with Matt Andresen as CEO. Island was an early hub for

high-frequency trading High-frequency trading (HFT) is a type of algorithmic trading in finance characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools.Lin, Tom C. W. " ...

firms like Getco and

Tradebot Tradebot Systems, Inc. is a high-frequency equity trading firm in the US. Based in Kansas City, Missouri, they regularly account for 5% of the total trading volume in the US stock market. According to the founder, Dave Cummings, as of 2008, the ...

in the early 2000s. Instinet acquired Island Exchange in 2002 and renamed the

trading platform In finance, an electronic trading platform, also known as an online trading platform, is a computer software program that can be used to place orders for financial products over a network with a financial intermediary. Various financial products ...

Inet Inet was an electronic trading platform based on a system developed by Instinet in the 1970s that merged with Island ECN in 2002 and was subsequently acquired by NASDAQ in 2005. Inet, like other electronic communication networks, was an order-pa ...

References

Electronic trading platforms 2002 mergers and acquisitions {{stockexchange-stub