A group of major investment firms announced plans Thursday to invest $23 million in a London-based electronic stock exchange that they hope could eventually compete with U.S. players such as the New York Stock Exchange.
The investment in Tradepoint Financial Networks, which runs an innovative but money-losing exchange, is another example of the dramatic shifts taking place in the way that shares are traded around the globe.
The investment consortium is led by Reuters Group's Instinet unit, which operates a stock-trading network that competes with the NYSE and Nasdaq. The group includes mutual fund firm American Century; Wall Street giants Morgan Stanley Dean Witter and J.P. Morgan; and Archipelago, another alternative trading network.
Tradepoint was created in 1996 as a for-profit rival to the London Stock Exchange. Proponents of for-profit exchanges contend they are more likely to work for investors' best interests than are broker-owned exchanges, such as the NYSE.
Individual investors trading U.S. stocks would not immediately be affected by Tradepoint. However, any pressure that upstart exchanges place on U.S. markets could lead indirectly to better prices on trades for small investors.
"There will be an immediate benefit by putting pressure on the exchanges in both Europe and the U.S. to say, 'There are alternatives out there, and there are some pretty big players looking at those alternatives,' " said Harold Bradley, an American Century fund manager and former trading chief.
The combination of swelling trading activity by individuals and increased participation in U.S. markets by foreign firms has spurred the growth of alternative markets.
For example, so-called electronic communication networks, such as Instinet and Archipelago, have siphoned business from the NYSE and Nasdaq. Those two markets, in turn, are contemplating altering their operations through such steps as trading each other's stocks, adding evening hours and partnering with their ECN rivals.
The Tradepoint investment comes amid rising controversy over whether small investors, increasingly active as traders, are receiving the best possible prices when their trades are executed.
Securities and Commission Chairman Arthur Levitt said Monday that he has instructed his staff to study the issue of trade execution.