First U.S. All-Electronic Options Exchange Opens

BOSTON (05/26/2000) - The International Securities Exchange LLC (ISE) opened its doors in New York Friday. It is the first new securities exchange in the U.S. in 27 years and the first fully electronic options exchange in the country.

Trading began at 9:30 a.m., with options listed in three securities: LSI Logic Corp., Alcoa Inc. and SBC Communications Inc.

Options trading is different from typical stock trading in that investors don't buy or sell a stock; they buy the right to buy or sell a stock on a specific date for a specific price.

The ISE eventually hopes to offer options on the 600 stocks that inspire 90% of the option-trading market in the U.S.

The Competition

The ISE's competitors are the four existing options exchanges: the Chicago Board of Options Exchange (CBOE), New York's American Stock Exchange, the Philadelphia Stock Exchange and San Francisco's Pacific Exchange.

All four combine traditional trading floors with electronic systems. For example, the CBOE, which is the largest of the U.S. options exchanges, executes 39% of its trades electronically.

The CBOE isn't worried about the threat from the ISE, said CBOE spokesman Gary Compton. The CBOE gives traders access to options on 1,400 stocks, with more than 120,000 types of options available. In addition, the CBOE earlier this month eliminated trading fees for individual investors, though Compton said the move wasn't in response to the ISE's free retail trades.

Given CBOE's elimination of those fees and its larger pool of buyers and sellers, the ISE will face a hard road - particularly considering the recent downturn in the market.

"Anything coming right now may suffer because we're having dramatic volume drop-offs and a lot of the speculative interest we've had in the market has dried up," said Roger Volz, a technical analyst at New York-based Swiss American Securities, a subsidiary of Credit Suisse.

But ISE spokesman Gary Katz said the new exchange does have one major advantage over the existing exchanges: It's faster.

Unlike the traditional exchanges, the ISE centralizes and streamlines all transactions because it doesn't have to deal with legacy systems, according to Katz.

"We're faster because of this," he said. "Our turnaround time is under a second."

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