The Trade Show.

• Author: Millman, Gregory J.

Watch out - electronic communications are quickly changing the way stocks are bought and sold. Should you catch the ride?

Propelled into the headlines by a mass murder in Atlanta, day trading was a summer obsession almost as spooky as "The Blair Witch Project." Indeed, the two have a lot in common. Both involve outsiders taking on the establishment and winning, thanks in large part to adept use of the I-way. Young unknowns slapped together "The Blair Witch Project" on a ridiculously low budget and used the Internet to circumvent the usual costly channels of promotion and distribution, succeeding against the odds. The day trading boom also owes its popularity to young outsiders using cyberspace technology to beat almost incredible odds. But while "The Blair Witch Project" is already old news - last summer's movie - the impact of day trading will unquestionably endure.

That's because the story of day trading is only partly about individuals taking suicidal risks buying and selling stocks in direct competition with Wall Street's big Beneath the surface there's a much bigger story breaking, with remarkable implications for corporate finance. The online exchanges day traders have invented to make their game faster and better pose a clear threat to traditional exchanges, and have some knowledgeable observers wondering whether it still makes sense for corporations to list on well-known exchanges.

The buzz hasn't fallen on deaf ears. In fact, both the New York Stock Exchange and Nasdaq have been talking publicly about changing their ownership structure to cope with the rapidly changing competitive environment. Electronic communications networks, or ECNs, many created by day traders, do the basic job of trading stocks cheaper and faster than traditional mechanisms. And ECNs are on a roll. In fact, in a recent speech at Columbia Law School, SEC Chairman Arthur Levitt acknowledged, "ECNs have been dynamic contributors to the Nasdaq market. Now that some are registering as exchanges, we must insist that they be permitted to compete with the Nasdaq market and the established exchanges on fair and equal terms."

Archipelago Holdings, an ECN with roots in day trading, has over the past year attracted a corps of powerful investors, including Goldman Sachs, Merrill Lynch, E*Trade, Reuters subsidiary Instinet and General Electric subsidiary CNBC. In September, Archipelago filed an application with the SEC to change its status from an ECN to a full-fledged exchange. Upstart Archipelago has already...