Fast Track: Archipelago establishes beachhead inside Beltway

Joseph Lombard is making a relatively rare transition.

A top counselor under former Securities and Exchange Commission Chairman Arthur Levitt, Mr. Lombard, 37, has moved to Archipelago LLC where he will no longer focus primarily on regulatory law. Instead, his primary responsibility will be sales.

Mr. Lombard, executive vice president for the Chicago electronic communications network, opened Archipelago’s Washington office April 2.

But initially he will be spending as much time promoting Archipelago to potential clients in Chicago and New York as he does in Washington.

While he still expects to handle some Washington issues for the company, which in recent weeks has handled more than 6% of Nasdaq’s trading volume, he will focus more on promotion and development.

“I understand the product, and I understand the people who use it, and have relationships with many of them,” says Mr. Lombard.

“The key to understanding what Archipelago is as a product is understanding the structure of the markets and the evolution of that structure. I was part of the chairman’s team for helping to understand and respond to that change.”

As senior counsel to the SEC chairman for market regulation from July 1999 to this past February, Mr. Lombard advised Mr. Levitt on market fragmentation, decimalization, new securities exchange applications, proposed revisions to trading platforms, market data, and equity- and options-market linkages among other issues.

He received the SEC’s Capital Markets Award for his involvement in the commission’s options market reform and execution-quality initiatives.

becoming an exchange

Archipelago and Island ECN – which like other electronic communications networks match buyers and sellers in the market – have both applied to the SEC to become electronic exchanges. Margaret Nagle, a spokeswoman for Archipelago, says the company hopes “approval will come shortly.”

Archipelago hopes to launch its new exchange at midyear. It would operate it in an alliance with the Pacific Exchange.

The trading network, created in 1996, is a unit of Archipelago Holdings LLC. Investors include Goldman Sachs & Co., Merrill Lynch & Co. Inc., J.P. Morgan Chase & Co. and E*Trade Group Inc.

Mr. Lombard says Archipelago’s strength is “the competitiveness of the trading platform, [which] allows orders to compete with each other on equal footing. In terms of market structure, the advantage it has is being a completely open system.”

That contrasts with ECNs such as the Bloomberg Tradebook, whose customers have to use a Bloomberg terminal.

Archipelago “links to whatever trading system anybody has,” Mr. Lombard says. “More important,” he adds, “they have cutting-edge connectivity to all sources of liquidity in the market, to all markets, whether it’s the New York Stock Exchange, another ECN, a dealer or the Nasdaq. It’s different in that its philosophy is connectivity.”

In contrast, in a system such as Island’s, trades are executed internally.

Mr. Lombard sees access as the major issue for ECNs, which base their business on providing fast, cheap trading for their institutional customers. “The vision of the national system is one of competing transparent and connected markets,” he says.

“Realizing that vision means clearing the way for alternative markets to compete on equal footing, particularly in the listed market.”

Kevin O’Hara, Archipelago’s general counsel, says it is important for the company to have a Washington presence as it goes through the regulatory process of becoming an exchange.

Jerry Putnam, the CEO of Archipelago, recently testified before a subcommittee of the House Financial Services Committee on market data access and fees.

Before joining Mr. Levitt’s staff, Mr. Lombard was special counsel in the Washington office of O’Melveny & Myers LLP, where he counseled investment advisers, broker-dealers and corporate issuers on federal securities laws.

After earning his law degree from Georgetown University Law Center in 1990, he began his career as a staff lawyer in the SEC’s division of enforcement. He also holds a master’s from the London School of Economics.

“His background and experience fit well in Archipelago’s senior management,” Mr. O’Hara says of Mr. Lombard.

“We will be very aggressive about listings. He’s going to be involved in that,” Mr. O’Hara adds.

“We’re going to introduce ourselves to corporate America and explain why it would be more advantageous from a market structure standpoint to trade on Archipelago.”