Fully Electronic Options Exchange Announced

International Securities Exchange (ISE), the first fully electronic stock options exchange in the U.S., was announced today by David Krell, its president and chief executive officer.

The online exchange will lower investors' costs and provide fast order execution and competition in options trading, according to an ISE statement. Stock options provide the right to purchase or sell a stock at a specific price within a stated period.

Participating in the ISE venture are Sweden-based OM Technology, and Compaq Computer Corp., ISE said.

ISE will buy US$3 million [M] worth of Compaq's 64-bit AlphaServer systems running OpenVMS multi-site clustering, fault-tolerant Reliable Transaction Router software with transaction integrity, personal computers and professional services, Compaq said in a statement.

OM Technologies, a subsidiary of OM Gruppen AB, will provide its electronic trading software through licenses with ISE. The software will provide turnaround times of less than one second, ISE said.

"This is a case of the market against the market makers," said Julio Gomez, principal of Gomez Advisors Inc., an online trading consultancy in Concord, Massachusetts.

Currently the stock options trading industry is manual and controlled by middlemen, called market makers, Gomez said. Automating the exchange of options will narrow the spread, which is the difference between the bid price and the offer price, he said.

"Previously there has been some noise about automating the stock exchange, but this is the first initiative with major support challenging status quo in the stock options industry," said Gomez. "This is something that stock options traders have resisted until now," he added.

Automating the stock options exchange will only benefit the buyers and the sellers in the market -- not the middlemen, Gomez said.

Trading on the ISE is scheduled to begin January 2000 with ISE planning to list 600 stock options. ISE will be the first exchange to be approved by the Securities Exchange Commission in 25 years. SEC approval is anticipated in 1999.

ISE's membership will include: 10 primary market makers, 40 market makers and an unlimited number of brokers and dealers who will be electronic-access members.

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