Needham, MA, July 26, 2000 — TowerGroup, the Needham, MA-based research and advisory firm specializing exclusively on the intersection of information technology and financial services, announced today its estimate that Electronic Communications Networks (ECNs) now account for nearly 37% of NASDAQ market share. Based on estimates derived in part from NASDAQ data, ECNs have held a 37% market share for NASDAQ shares traded for the months of April, May and June, up from approximately 31% in prior months.

Much of the 6% gain in market share can be attributed to lower overall volume of NASDAQ trading since the market correction in early April. Interestingly, as the NASDAQ Composite fell and liquidity began to dry up in early April, the ECNs began to account for more of NASDAQ trading, suggesting that NASDAQ investors have been more successful finding liquidity in the ECNs in the less active periods.

"Apparently, the ECNs are being turned to more frequently on the less active days, and the lower overall trading volumes have not affected the ECNs as much as the traditional market makers," said Rob Hegarty, Director of Investment Management Technology Research at TowerGroup. "As investors, particularly the institutional investors, find it more difficult to execute trades in the NASDAQ marketplace, they are looking to more pools of liquidity, and the ECNs are part of that."

"We also think that institutions are becoming more active in ECNs, as day traders have been retreating from participating in the markets," Hegarty continued. "Also, the ECNs are becoming more interconnected, so more volume is being routed through the ECN virtual network" He points to ECNs like Archipelago and Bloomberg Tradebook marketing their capabilities to link with other marketplaces including other ECNs.

TowerGroup Research: Highlights from TowerGroup research are available to members of the press.