What are the differences between LMAX Exchange and an Electronic Communications Network (ECN)?

ECNs, are electronic trading systems that automatically match buy and sell orders at specified prices. Most ECNs register with the SEC, in the USA, as broker-dealers. ECN’s exist for different asset classes including equities e.g. Nasdaq market, and currencies. The ECN charges fees by either charging commission on trades or by adjusting order prices.

LMAX Exchange runs multiple order books (LMAX Professional, LMAX Institutional and LMAX Interbank) with binding limit orders. There's no ‘last-look’ by price providers, no opportunity to requote, no spreading of prices to cover fees, and no routing around a network of possible counterparties to find a price. LMAX Exchange charges commission on traded volume, as all Orders are matched at submitted prices. As a result, a client’s ability to hit an advertised price is only constrained by competition from other clients, offering reliable and consistent order execution.

There's nothing to stop an ECN from operating in the exactly same way as LMAX Exchange, but many ECNs do offer price routing, ‘last-look’, price adjustment, adding a degree of unpredictability to order execution. The regulatory constraints on an ECN are also less clear because it depends on what exemptions they've agreed and what level of market share they've acquired. There's much less negotiation around the regulatory requirements for an MTF.

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