In a move to compete with the leading options trading floors, online trading site E*Trade Group
, along with several other broker-dealers, today announced plans for a new electronic options exchange.
E*Trade chairman William Porter said the International
Securities Exchange (ISE) will operate with greater efficiency and accuracy, and at a lower cost, than other exchanges.
The ISE will compete directly with the four U.S. options exchanges, which include the Chicago Board Options Exchange, the Pacific Exchange, the Philadelphia Stock Exchange and the American Stock Exchange.
David Krell, president and CEO of the new exchange, said, "we plan to have a system where our dealers quote and shout electronically rather than verbally.
"We think that is much more efficient and leads to lower costs and timeliness of execution," Krell added.
The ISE will be the first fully electronic options exchange in the United States and the world's first options marketplace combining electronic trading with auction market principles, said Krell.
The exchange will trade options of 600 stocks and is scheduled to start trading by January 2000.
The $80 million venture is being financed by E*Trade, as well as a group of investors including Herzog Heine, Ameritrade Holding, Knight/Trimark Group, Scottsdale Securities and Geduld, and several others whose names were not released.
"We have ample financing through our broker-dealer consortium to run our current business plan into the foreseeable future," Krell said.
The use of the exchange is reserved for brokers and dealers, and excludes individual investors.
"We will have a Web site that is for informational purposes only," Krell said. "If you are thinking about accessing the exchange, you can gain access through our member broker-dealers."
Compaq Computer will provide critical hardware and applications for the exchange, said Krell.
"We will use the latest technology in [Compaq's] arsenal," added Krell.
The exchange has been in the planning stages for about two years now, in cooperation with the Securities and Exchange Commission.
Upon SEC approval, the ISE will become the first new registered U.S. securities exchange in 25 years. The last registered exchange approved by the SEC was the Chicago Board Options Exchange in 1973.
E*Trade shares ended the day lower, off 2.25 to 22.75.