In an interview with Akash Joshi of The Financial Express,Charles Balfour, managing director of Nasdaq, one of the largeststock exchanges in the world, spoke about the transition in the stockexchange business. Some excerpts:

AJ: How profound do you think is the impact of Electronic CommunicationNetworks (ECNs) and online trading on traditional stock exchangebusinesses?
CB: The impact of ECNs on traditional stock exchanges is having an effect onthe markets today. They are the exchange-like entities that tradesecurities. However, they do not play by the same rules as market makerscharging fees for access to their buy and sell orders. We need to avoidfragmenting the market and ensure that we all play by the same rules. Atpresent, market makers account for approximately 70 per cent of Nasdaq'stotal volume and ECNs account for the rest. The share volume for both, thetraditional market makers and the ECNs, who are increasingly competing forthe flow of order, appear on the Nasdaq tape.

In the sense, do you think in the long run, the traditional business ofstock exchanges would be threatened?
The traditional business of stock exchanges will evolve with the growingchanges in technology, competition and investing environment. Clearly, weare already seeing this evolution with alliances, mergers and the use oftoday's Internet technology. The exchanges will have to embrace the changingworld of investing in order to survive.

What kind of impact it would have on the institutionalparticipants?
Institutional participants will also have to embrace growing changes,keeping up with the technologies of tomorrow and push towards globalisation.

Do you think the mushrooming Internet-based stock exchanges would dry upliquidity and fragment the financial markets?
The ECNs would potentially fragment the financial markets, aid in confusionand potentially create higher costs in the market, because they are notplaying by the same rules as the stock exchanges. The Securities ExchangeCommission has not yet approved an ECN attaining exchange status. Currently,this is under review and could take a minimum of 18 months before any kindof decision is made. One important aspect to be considered is how an ECN,operating as an exchange would be regulated. NYSE and Nasdaq are bothself-regulated organisations and carry the cost for extensive and highlysophisticated computer systems to regulate trading. Having more participantsin the market, however, does increase liquidity.

Do you, in the long run, see various specialty exchanges offering`one-stop' opportunities at one location or website. In other words, do yousee commodity and stock exchanges merging and offering services under oneumbrella?
I do see some consolidations taking place. The merging of commodities andfutures exchanges with equity markets is a possibility.

How far, do you think, we are away from a 24-hour global financialexchange?
Five years or less. The investors are demanding it, so it is only a matterof time.

What are Nasdaq's plans in the light of technologicaldevelopments?
Nasdaq's plans in the light of technological advancements, are to embracethe developments, build upon them and evolve its architecture to support it.