Electronic communications networks will experience a tremendous growth spurt but peter out within a few years, according to Meridien Research Inc.
ECNs, the alternative stock markets that automatically match buy and sell orders, will handle 51% of Nasdaq volumes by 2001, Meridien predicted, up from about 30% now.
They are filling a niche that will eventually disappear as fully electronic, order-driven stock exchanges begin to emerge in the United States, Meridien said in a report titled "ECNs -- Who Will the Winners Be?"
The largest of the nine ECNs that have been approved by the Securities and Exchange Commission is Instinet, which accounts for 49% of ECN trading volume. Island is next, at 20%.
Octavio Marenzi, a director at Meridien, said he expects Nasdaq itself to become an ECN, probably by buying out one of the nine existing companies.
"Some ECNs realize this and are trying to expand out of the Nasdaq world," Mr. Marenzi said.
Areas they are entering include derivatives trading, fixed-income trading, and foreign equities, he said. The research firm said the phenomenon of ECNs will not last more than three or four years. -- Chris Costanzo