InformationWeek

Umansky says traders turn to Archipelago because it guarantees to complete a trade. If a buyer isn't available on its network, it will turn to The Island or a Nasdaq broker-dealer to get the deal done. The Island only handles trades within its network. While this approach is a key differentiation for Archipelago today, it wasn't an option in the beginning, when it had little choice but to conclude trades through other networks or exchanges. Says Townsend, "We didn't have any customers, so we had to do it."

Now that Archipelago has clients of its own, Townsend Analytics has been transformed. Once a pure software company, it has become a services business with more than 200 people, contracted by Archipelago to keep the market running and to assist clients. "It's real-time customer interaction," Townsend says.

Townsend also has had to reconfigure the company's offices. The developers of its downtown Chicago building didn't envision several rooms full of servers and routers when they built it; Townsend has had to add his own electricity transformer and air-conditioning units to keep the system running.

Putnam's role is heavy on the politics, including tirelessly campaigning in Washington, for more freedom for electronic communication networks, arguing that stock markets will only improve by increasing competition. While the idea has been warmly received in Washington, the battle isn't over. The Archipelago-Pacific Stock Exchange merger is still pending before the SEC.

Even if the merger is approved, Archipelago has plenty left to overcome. As a trading alternative, it faces successful rivals such as The Island. And the combined Archipelago and Pacific Stock Exchange has to prove it offers something large exchanges can't.

Archipelago has attracted believers-in the form of investors-from a broad spectrum of the financial-services industry, on both the institutional and retail sides. It's putting some of that investment to work this summer on a television and print advertising campaign, hoping to boost its corporate image as well as its trading volume, which has steadily risen to top 60 million trades a day in March.

Gartner Group's Furlonger expects competition for electronic communication networks will heat up as stock exchanges consolidate around the world and offer better service directly to investors, including electronic trading. If they do that well, they could eliminate the need for alternatives. "The ECN was a driving force in changing how people looked at trading, but you have to eventually question their role in life," Furlonger says.

JPR Capital's Umansky is more skeptical that exchanges will ever offer the service that The Island or Archipelago do. "The reason ECNs came into place was Nasdaq didn't provide the service people wanted," he says. Exchanges are "too slow."

Even if all goes well, Archipelago will face the challenges of success, which is where Townsend Analytics must continue to deliver IT performance. Archipelago makes its reputation by offering a quicker, more transparent way to conduct trading. It's why contractor Townsend has added so many racks of new servers and routers during the past year.

With trading volume rising, Townsend's No. 1 minute-to-minute priority is not to outwit Nasdaq or The Island. "It's capacity," he says. "We can get 20,000 to 30,000 requests in a few seconds."