Painfully Simple, Painfully Fair

Added on by C. Maoxian.

From a December 1999 article in Wall Street + Technology titled The top 10 financial technology innovators of the decade

Joshua Levine The Matchmaker
If there's a single person that revolutionized the equity markets in the 1990s, it's Joshua Levine, creator of the Island ECN--a computerized trading system that automatically matches buyers and sellers.
Island is an outgrowth of The Watcher, a front-end trading system into the Nasdaq system that Levine had first created, which provides day traders with direct electronic access into the SOES and SelectNet systems. Island, however, developed in January 1996, is widely considered a more significant innovation.
"This was probably the most influential change in the markets since they did away with fixed-commission rates in the 70s," says Mark Friedfertig, CEO of Broadway Trading, a leading day-trading firm that has used Island since January 1996.
As Friedfertig recalls it, Island started as an internal electronic communications; network (ECN), which Friedfertig and others say led to the SEC's order handling rules issued in January 1997. The rules force Nasdaq market makers to post their customers' limit orders in their Nasdaq quote or send the order onto the newly created ECNs.
According to Peter Stem, the Chief Technology Officer of Datek Online, Island is successful because "the Island ECN is just painfully simple, it's painfully fair, there are few rules because it's very straight forward-buyers and sellers meet, a trade is won, end of story," says Stem, who met Levine when both were freshman at Carnegie Mellon University. Levine reportedly left school and headed for Wall Street where he teamed up with Datek Online co-founder Jeffrey Citron. Noticing that there were "cross markets" going on in Nasdaq-when the price someone is willing to pay to buy stock is higher than the price someone else is offering to sell at-Levine wrote a program to track how many times a day this was happening. 'Josh said, this is ridiculous that trades aren't taking place when you have customers that are willing to pay higher to buy than customers willing to sell stock," recalls Friedfertig. "He created a way for customers to trade with other customers as opposed to just trading with market makers," says Friedfertig.
Levine spread the gospel by publishing the Island API (application programming interface) on his own personal Web site, Today, Island has grown to become the second most popular ECN after Instinet-executing over 100 million shares a day. (Levine himself argues that "Instinet created the ECN trend, not Island. Island just did what Instinet was already doing, only better.")
Island is one of three ECNs that have filed with the SEC for permission to register as an exchange. And, it's currently the only ECN to display its real-time limit order book to the public on its Web site, using a program that Levine wrote called the BookViewer, as well as to reveal its volume statistics.
Levine, now 31, is in charge of the development of all the core systems, which have been written in DOS and Java. Going forward, where Island needs work, he says, is not in its system, but in its communications. "Our challenge in the future is to explain to the investing public how the markets work."