Electronic Communication Network - ECN
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Electronic Communications Networks, widely referred to as ECN's, are electronic trading systems that automatically match trader buy and sell orders at specified prices. ECN's register with the Securities Exchange Commission (SEC) as broker-dealers.
Those who subscribe to ECNs institutional investors, broker-dealers, and market-makers can place trades directly with an ECN.
Individual traders must currently have an account with a broker-dealer subscriber before their orders can be routed to an Electronic Communications Network (ECN) for trade execution.
When seeking to buy or sell securities, ECN subscribers typically use limit orders. ECNs post orders on their systems for other subscribers to view. The ECN will then automatically match orders for trade execution.
If a subscriber wants to buy a stock through an ECN, but there are no sell orders to match the buy order, the order can't be executed until a matching sell order comes in. If the order is placed through an ECN during regular trading hours, an ECN that can't find a match may send the order to another market center for execution.
To learn more about the basics of trade execution including order routing, payment-for-order-flow, and internalization you should read Trade Execution: What Every Investor Should Know. You can also read a special study prepared by the staff of the SEC that discusses the impact of ECN's and after-hours real-time trading on the securities markets SEC Gov.