International Securities Exchange Looks To Tech For Trade Boost
21 Dicembre 2010 - 10:57PM
Dow Jones News
The head of the International Securities Exchange said Tuesday
that a new trading system will make it the fastest venue for
handling U.S. stock option trades and help reclaim market share
lost to rivals over the past 18 months.
The planned Optimise system is a month behind schedule and due
to launch in April, but according to Chief Executive Gary Katz
represents the ISE's best opportunity to generate near-term
growth.
"It's a competitive advantage that should accrue to ISE," said
Katz, who has seen the exchange's share of the U.S. equity options
market fall to 17.4% this month from 31.2% in July 2009.
The slide has seen ISE parent Deutsche Boerse AG (DB1.XE) write
down approximately EUR850 million, representing about 42% of the
$2.7 billion it paid to buy ISE in late 2007, including a charge
this quarter.
Katz said in an interview that he has personally made a
"long-term commitment" to the ISE and Deutsche Boerse to serve as
the exchange's CEO, and that he does not think about
retirement.
At the time of its purchase by Deutsche Boerse, the ISE was the
second-largest U.S. options exchange by market share, but its
position has slipped because of tough competition and dealmaking by
competitors.
Katz on Tuesday attributed most of the impairment charges to a
broad decline in exchange valuations, with shares of publicly
traded rivals declining by roughly 50% over the same time period.
Katz said ISE had performed comparatively well in a "very, very
difficult environment" for the business.
But trading activity at the ISE has fallen by 27% over the past
two years, even as overall options volumes have continued to rise.
Katz said that the exchange has ceded some business in handling
large-sized block trades to floor-based exchanges as regulators
continue to scrutinize a proposal that would make it easier for the
all-electronic ISE to transact such orders.
Shifts in exchange ownership have also changed the landscape,
Katz said. NYSE Euronext (NYX) last year moved to sell stakes in
its Amex options exchange to seven Wall Street firms, providing an
incentive to direct more of their trading to that platform.
Katz described a similar effect after firms saw their
memberships at the Chicago Board Options Exchange converted to
shares in the mid-June initial public offering of CBOE Holdings
Inc. (CBOE), "It's clear that firms involved with the CBOE and that
own shares of that stock have been supporting that exchange," said
Katz. ISE has not discussed any such ownership shifts, he said.
Rolling out the new Optimise options trading system, the first
ever wholly owned by the ISE, will let the company bring new sorts
of contracts to market faster and build out capabilities for
handling complex, multipart options trades, according to Katz.
"The DNA of ISE, from the day we founded the company, has been
to innovate, and to do that it requires that you bring new ideas to
market faster than competitors," he said.
The upgrade, alongside moving ISE's trading engines into new
data centers, should see the exchange's trade-execution speeds
outpace industry rivals, Katz said. The ISE has not disclosed the
cost of developing the systems.
The new infrastructure would also provide the basis should ISE
move forward with long-discussed plans to launch a second options
market. "If we do anything like that, it would be on the new
trading platform," Katz said.
Katz said the ISE would use its investment in stock-exchange
operator Direct Edge to help customers transact options orders that
incorporate trades in related stocks, with new functions slated to
come online next year.
-By Jacob Bunge, Dow Jones Newswires; 312-750-4117;
jacob.bunge@dowjones.com
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