Alternative trading venue Direct Edge plans to convert to an exchange in the fourth quarter of 2009, when it will introduce a new trading platform, company officials said Friday.

Direct Edge, one of a new breed of electronic equities trading platforms challenging established exchanges like NYSE Euronext (NYX) and Nasdaq OMX (NDAQ), will follow a path blazed by Bats Trading, an alternative trading venue that attained exchange status last year.

Direct Edge in late December completed a deal to acquire the equities market of the International Securities Exchange, which gave ISE a 31.5% stake in Direct Edge. ISE, which retained its bigger options business, is a subsidiary of Deutsche Boerse (DB1.XE).

Other Direct Edge backers include Knight Capital Group (NITE), Goldman Sachs & Co. (GS), Citadel Group, JP Morgan Chase & Co. (JPM), Merrill Lynch & Co., Nomura Securities (NMR) and Sun Trading.

Direct Edge is working to fuse ISE's equities trading technology with its existing systems to create a best-of-both-worlds trading platform, according to Bryan Harkins, head of sales and marketing for Direct Edge.

The company announced Friday that it tapped Foster City, Calif.-based technology firm Equinix Inc. (EQIX) to provide a data center for the trading platform.

The company currently operates two electronic equities markets, EDGA and EDGX, in addition to the ISE Stock Exchange.

Direct Edge's effort to secure exchange status for its EDGA and EDGX markets requires approval from the Securities and Exchange Commission. If given the go-ahead, the company plans to begin user acceptance testing in the second quarter, with trading platform development to be completed by the third quarter.

Upon converting the two markets to exchanges, Direct Edge plans to close down the ISE Stock Exchange, shifting trading activity over to the EDGA and EDGX markets.

On Monday, Direct Edge reported a 6.9% market share in matched U.S. equity trades for December, a 60% year-on-year increase. Bats reported a 10.46% U.S. market share.

-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117; jacob.bunge@dowjones.com

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