SEC Gives Green Light to Fully Automated Options Market

Separately, the ISE signs an allocation agreement with NASDR, the Nasdaq Stock Market’s regulatory arm.

The International Securities Exchange—an all-electronic market scheduled to be launched on March 24—has been granted Securities Exchange Commission (SEC) approval to begin operation. Separately, the ISE has signed an allocation agreement with NASDR, the Nasdaq Stock Market’s regulatory arm. The SEC’s ruling grants the ISE status as a self-regulatory organization. However, prior to going live with trading, the ISE must still become a member of the Options Clearing Corp. and join the Options Price Reporting Authority—the organization that consolidates and disseminates options market quotes.

Meanwhile, the ISE’s deal with the NASDR calls for that regulatory firm to ensure that firms that are members of both the Nasdaq and the ISE comply with common rules. Beyond that allocation agreement, the NASDR will also separately be responsible for performing a group of yet-to-be-announced regulatory functions for the ISE.

For funding purposes, the ISE has formed a membership consortium. Dubbed the Adirondack Trading Partners, the consortium includes Ameritrade Holdings Corp., E-Trade, Herzog Heine Geduld, Knight/Trimark Group, Scottsdale Securities and other broker/dealers.

Initially, the ISE will trade options on the 600 most widely owned equities. Eventually, the exchange—which plans to compete with the likes of the American Stock Exchange and Chicago Board Options Exchange—may expand its coverage to include index options.

ISE trading will be done using OM Technology’s client/server-based Click Exchange trading system. That system is currently being used at 13 exchanges outside the U.S., including the Australian Stock Exchange, and the Hong Kong Futures Exchange. Market makers will also have the option of using Orc, the front-end workstation component of Click Exchange.

The ISE has also hired Davidge Data Systems to develop order routing connectivity software for its OM-supplied trading engine. The connectivity software is expected to allow ISE’s members to use their own order routing systems and protocols to send an order directly to the exchange’s trading system.