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According to McAndrews and Stefanadis, the competition spawned by electronic communications networks (ECNs) stock-trading systems that match buy and sell orders and execute transactions is already encouraging faster order execution, lower transaction costs, and better customer service.
McAndrews and Stefanadis also find that:
ECNs might eventually enable stock trading to migrate from a single site, such as an exchange floor, to highly interconnected market centers.
ECNs already have a sizable share of Nasdaq trading volume, but it is too early to predict exactly how they will reshape the equity markets.
Traditional exchanges and market centers are investing in new technology and trading systems in response to the growing challenge of ECNs.
James McAndrews is an assistant vice president and Chris Stefanadis an economist at the New York Fed.