Prepared Testimony of Matthew Andresen
President of The ISLAND, ECN Inc.

Chairman Mack and Members of the Committee: I commend the Chairman and the Members of the
Committee for holding these timely hearings concerning the importance of biotechnology companies and
the central role they play in improving quality of life. I appreciate the opportunity to appear before this
concerning our views on venture capital, the committee to testify specifically concerning our view on
venture capital, the biotechnology industry, and their dependence on an efficient marketplace.

I am Matthew Andresen, President of The Island ECN ("Island"). Island is an
automate trading system for equity securities. It gives brokers the power to electronically display and
match customer orders in equity securities. We function as a pure auction market -- directly matching buy
and sell orders. Island was founded approximately three years ago with the intent of providing all market
participants - from individual investors to large financial institutions - with the ability to execute securities
transactions on a level playing field, at an extremely low cost and without the presence of intermediaries
or dealers. On an average day, Island will trade over one hundred and twenty million shares -
approximately 12% of the transaction volume on Nasdaq. All this will be done on a single computer about
the size of Chairman Mack's podium. In the previous three months, Island traded over six billion shares
worth almost $400 billion. We are here today because an Integral sector of our economy, biotechnology,
is having difficulty raising capital. In fact. capital raised through Initial Public Offerings or IPOs declined
48 percent in 1998. Although there are recent signs of improvement, more needs to be done to ensure the
health of the biotechnology sector. As a secondary market for publicly traded equity securities, Island
plays an important role in strengthening the equity markets and facilitating, the raising of capital. Island's
goal is to create a secondary equity market that is transparent. fair. and efficient. The achievement of this
goal will increase investor participation and. in turn, the amount of capital available to fund bio-
technology as well as many other types of companies. With respect to strengthening our capital markets,
Island would like to take this opportunity to applaud Chairman Levitt's recent remarks. We believe that
his visionary speech points the way toward significantly improving our capital markets and ensuring the
United States' continued leadership into the new millennium. The plan would create competition between
markets and allow innovative new markets to compete on a level playing field with traditional exchanges.
History shows that there will be two beneficiaries of this increased competition: Investors will receive
improved service, innovative new services and dramatically lower costs; and companies will have access
to more capital to help bring a new product or idea to market.

Island appears in front of this Committee today with a unique view of venture capital. Island is both a
recipient of valuable venture capital financing and a significant contributor toward making venture capital
funding more available. As a recipient of venture capital financing, we understand the importance of the
infusion of capital to seed a business idea that promises to improve the lives of consumers. Americans
have an instinctive appreciation for the importance of entrepreneurs in creating and pursuing new
opportunities. It is not an overstatement to say that the future economic success of our country depends
on it. A little over two years ago, Island was a company of just three people with an idea in search of a
market - literally. Island's goal was to make the securities markets fairer, cheaper, more transparent and
thus more accessible to all investors. Making such a dramatic impact on the equity securities market,
however, required the infusion of a considerable amount of capital. To continue to grow our core
business, Island needs to continually make substantial investments in technology and staff. Finding the
financing to make such investments was a challenge. Finally, approximately four months ago, Island
received $30 million in venture capital financing that will allow us to carry out our plans to forever change
how securities are traded. We are already seeing the benefits of competition in the equity markets as both
Nasdaq and the NYSE have announced their intentions to make significant structural changes to enable
them to compete with systems such as Island. In the end, investors will benefit from the costs that
inevitably result from competition. As I stated earlier, we are not only a recipient of venture capital
financing but, as an equity market, Island is making an important contribution toward making venture
capital financing more available. While we might be distracted by the endless stream of opinions, hype,
and data, the most important function of the equity markets is raising capital for corporations. A venture
capitalist's key motivation is the possibility of returns far in excess of the risk-free rate of return.
Increasingly, the so-called "exit strategy" for a venture capitalist is an Initial Public Offering or IPO. IPOs
are only possible, however, in an environment where there to purchase the shares of the company going
public. As the level of are investors will participation in the market has increased substantially, we have
seen a growing appetite of investors for shares of IPOs. In turn, the success of IPOs encourages venture
capital companies to make further investments which creates a "virtuous circle" of investment. We have
all seen the investor frenzy over IPOs of companies in the Internet and communications sector. This
seemingly insatiable demand for Internet related IPOs is providing Internet related companies with access
to unprecedented amounts of capital far earlier in their life cycles. This access to capital will undoubtedly
contribute to our country's continued leadership role in the Internet and in technology generally. Another
impact of the increased demand for 1POs is a reduction in the amount of venture capital needed prior to
accessing the public market. Traditionally, a private company would go through a number of rounds of
venture capital financing until it was deemed ready to go public. Now, companies are going public, in
many cases, after just one round of venture financing often eliminating the so-called "Mezzanine"
financing. In short, the equity markets themselves have become a source of venture capital. Average
Americans can now participate in "public" venture capitalism. Despite the relative ease of which many
Internet companies have tapped the public equity markets, the biotechnology sector has. until recently,
had a much more difficult time raising money through either the public markets or venture capital. The
reasons put forward to explain this situation include: 1) a diversion of funds to the Internet sector; 2)
venture capital firms focusing on large scale projects, and 3) a consolidation in the banking industry. We
all recognize the tremendous amount of investment needed to fund the research and development
necessary to bring a breakthrough technology to market. Blo-technology is a cash intensive business and
its importance In improving all of our lives demands that we find ways to ensure its continued health and
vitality. While Island is not an expert on the biotechnology sector specifically, we do believe that one of
the best ways to provide bio-technology companies access to capital (whether it be through venture capital
or through an IPO), is to ensure that the trend towards cheaper, fairer, more transparent and more
accessible capital markets continues. Over the past few years, America has seen an explosion of interest in
the equities markets. Seemingly every day, as investor participation in the market continues to increase.
markets are setting, records for volume. Average Americans are participating in the stock market at a level
never seen before whether indirectly through their 401k company retirement plans and mutual funds or
directly through newly opened on-line broken accounts. Driving, this participation in the market is the
democratization of information and plummeting transaction costs. It was not long ago that we followed
the stock market by checking our local paper each morning or by calling our broker to find out the latest
news. Information about companies was difficult to find and often solely the province of large
broker-dealers that wrote research reports shared only with clients. Commissions on transactions were
routinely hundreds of dollars. thus putting investing out of reach for many. With the advent of the Internet
and the revolution in communications, tile landscape has been irrevocably altered. Whatever tile social
setting, it does not take long these days for the conversation to turn to the stock market. No longer do you
need to wait for the morning paper to follow your investments. Through the power of the Internet,
investors have access to real-time stock quotes. Island, however, goes one step further in providing
information to investors. In sharp contrast to traditional stock quotes that tell you that a share of
Microsoft "just traded at 90", Island is the first marketplace to provide a free, real-time display of all
orders on its Island Book Viewer. Why is this so important'? In addition to providing the investor with the
highest bid or lowest offer in a security, the Island BookViewer enables an investor to see all the orders to
buy and sell on Island. This gives investors the ability to better gauge supply and demand and thus more
accurately price their order. ID Perhaps more importantly, the public display of the Island BookViewer
reduces the informational and temporal advantages traditionally enjoyed by market makers and specialists,
thus creating a level playing field for all investors. By eliminating these time and place disparities, Island
helps lower the hidden costs of trading associated with higher spreads and inferior executions. In fact,
according to the Securities and Exchange Commission, investors have saved hundreds of millions of
dollars since the inception of ECNs just as a result of lower spreads. In addition to reducing trading costs
by leveling the playing field and eliminating hidden trading costs, Island also contributes to lower
commissions. Specifically, for each share executed on Island, our revenue is S.00075 per share for each
side of a transaction on Island. This is an exponentially lower price than was traditionally charged by some
of our competitors. These lower execution costs are passed on to the investor in the form of lower
commissions. Island believes that the plunging average on-line brokerage commission of approximately S
15 has lowered barriers to entry and enabled widespread participation in the market. Finally, electronic
marketplaces such as Island have led to an increase in market participation by fostering confidence in the
integrity of the market. Island strongly believes that an electronic marketplace is inherently safer, fairer,
and easier to survey. For example, people in a trading crowd on the floor of an exchange may possess
more information then the average investor sitting at home. Through surveillance and the implementation
of restrictions on the activities of those in the trading crowds, regulators try to level the playing field. As
recent events have shown, however, no amount of surveillance can completely prevent the misuse of
information. Electronic trading systems, such as Island, by eliminating informational disparities, reduce the
chance of improprieties. Electronic trading systems permit the individual investor to electronically step into
a virtual trading crowd and compete directly. This removes the potential for many abuses possible in a
conventional trading crowd. At Island, we like to say that "you can't front- run real-time!" If all orders
delivered to the virtual trading crowd are anonymously displayed in real-time to everyone in the trading
crowd, no single person has an informational advantage. Furthermore, because electronic trading systems
automatically capture and store all information, the market surveillance mechanisms are uniquely
equipped to perform the regulatory market surveillance functions. For example, at Island, we have the
ability to take surveillance to the next level. Historically, surveillance has involved analyzing completed
transactions for abuses like price manipulation. At Island and presumably other electronic trading systems,
we are able monitor orders as well as completed transactions. Order information is imbedded in the data
received from every user of the Island system. Electronic markets can monitor a much larger and
complete dataset for trading abuses such as price manipulation. In sum, the increased transparency, lower
barriers to entry, and enhanced integrity resulting from electronic trading systems such as Island have
assisted in the creation of a nation of venture capitalists. As a result, the health of the IPO and secondary
markets for any industry, including Bio-technology, are directly affected by developments in the
secondary equity markets. Accordingly, in order to help Bio-Technology companies, and for that matter
any company, raise money through venture capital or IPOs, Congress must remain vigilant in ensuring
that competition between marketplaces continues to flourish. Through competition, our capital markets
will be ever more accessible to all investors.

In conclusion, Mr. Chairman, I believe that we are witnessing one of the most dramatic
and exciting times in the history of financial markets. We at Island are proud
to have been at the forefront of this flourishing financial services industry. As a result,
today's investors have better access and information than ever before, allowing them to reap the benefits
of new services and lower costs. We hope that these improvements lead to an increase in the amount of
financing available to Bio-technology companies and, indeed, all companies. I look forward to working
with you and your colleagues to explore these exciting opportunities.