NYX Nyse Euronext

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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