Direct Edge Starts Trading as Full Exchange

JERSEY CITY, N.J.-Direct Edge formally launched the changeover of its EDGA and EDGX trading platforms into national stock exchanges Wednesday.

At 9:30 a.m., the platforms that once were classified as electronic communications networks began trading across all listed stock symbols, as exchanges.

"We refused to believe that trading was a commodity product,'' said Chief Executive Officer William O'Brien, at a launch ceremony at the Hyatt Regency Hotel here, near its headquarters and its data centers.

Direct Edge CEO William O'Brien, leading countdown to launch.

The occasion marked the changeover of its technology platform, as well. Direct Edge moved from a single data center with no backup, to two redundant trading facilities in north New Jersey. The changeover was accomplished over the course of 18 months, as chronicled in this Field Report.

Direct Edge now accounts for as much as 12% of matched trading in U.S. equities, whose volume now can exceed 1 billion shares a day, on all venues, O'Brien said. EDGA and EDGX will now each be capable of handling 2.5 billion transactions a day, which equates to hundreds of billions of shares in a day.

A decade ago, Direct Edge only handled about 1 million shares a day, operating as the Attain electronic communications network. Now owned by International Secuirites Exchange, Knight Capital Group, Citadel Derivatives Group, the Goldman Sachs Group and JP Morgan, the combined trading volume of EDGA and EDGX makes Direct Edge, by its count, the third largest stock exchange, behind the New York Stock Exchange and the Nasdaq Stock Market.

In 2006, Direct Edge started with six employees. When O'Brien came aboard three years ago, it had 19. Now it has 84.

"We've come a long way in a short time,'' said O'Brien.

Meanwhile, a report to clients from Patrick O’Shaughnessy of Raymond James Equity Research contended that Direct Edge is "losing market share during conversion to exchange." One estimate put the loss at four-tenths of a percent.

O'Shaugnessy reported that one user of Direct Edge has contended that the exchange platform had become “untradeable” because of slow market data. Another reported a “terrible time” trading on EDGX. That customer purported to contend that a slow data feed made it “impossible”  to send Intermarket Sweep Orders (ISOs).

O'Brien said "this is a big migration" and the idea that it had lost market share due to technical issues was "just noise."

Some customers unplug during a transition and replug in when any issues that arise during a changeover are resolved, O'Brien said. "This is normal,” he told Securities Technology Monitor.

O'Shaughnessy, in his report, though, said, "We think their problems will continue into the foreseeable future.”