Tag Archives: ISE

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Strike Price, Tech Talk

NASDAQ To Buy ISE Options Mart

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(Bloomberg)-In what merger-arbitrage experts might call a ‘take-under’, Nasdaq Inc. is paying less than half the price for what ISE traded for in its last price setting after it agreed to buy Deutsche Boerse AG’s International Securities Exchange for $1.1 billion, catapulting it to the top of the U.S. options market.The transaction could also help Deutsche Boerse fund another acquisition. The Frankfurt-based company is in merger talks with London Stock Exchange Group Plc. Deutsche Boerse has been trying to sell ISE, which it bought for $2.8 billion in 2007, since at least 2014.

ISE runs three options markets, and so does Nasdaq. Together, those six exchanges handled 38 percent of U.S. volume in February, which exceeds the current leader CBOE Holdings Inc.’s 27 percent, according to data compiled by Options Clearing Corp. However, CBOE arguably retains the jewels of options trading: exclusive rights to contracts on the Standard & Poor’s 500 Index and the VIX, a CBOE product that tracks investor fear.

“We are going to have the size and scale that competitors don’t have,” Nasdaq Chief Executive Officer Bob Greifeld said in a telephone interview Wednesday. “We’ve paid attention to ISE for a long

greifeld-nasdaq
Bob Greifeld, NASDAQ

period of time.”Nasdaq sees the deal closing in the second half of the year and plans to fund the transaction with debt and cash, according to a statement Wednesday. This is the New York-based company’s fourth acquisition in recent months, following deals for an investor-relations business in Canada, the Chi-X Canada stock market and SecondMarket, a platform for trading shares of private companies.

Deutsche Boerse is keeping two parts of ISE: its ownership interests in Bats Global Markets Inc. and Digital Asset Holdings LLC, according to an e-mailed statement. Bats runs exchanges for stocks, options and currencies. Digital Asset Holdings is trying to use blockchain, the software underpinnings of bitcoin, to dramatically speed up the processing of financial transactions.

A stake in a key options-market utility will shift over to Nasdaq through the acquisition. Both Nasdaq and ISE own 20 percent of Options Clearing Corp., the clearinghouse for all trades of stock options on U.S. exchanges.

“We think that’s an incredible organization and asset certainly as time goes on,” Greifeld said. “We’re very pleased with that part of this transaction.”

Shareholders of OCC recently began receiving dividend payments, compensation for a regulatory mandate requiring its owners to contribute more capital to support the organization. Bats Global Markets, which handles just over 10 percent of U.S. options trading, has complained it’s unfair it doesn’t get those dividends because it’s not an OCC owner.

People Profiles, Strike Price

Open Outcry Options Pit Trading is Dead..Long Live Open Outcry Options Pit Trading

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MarketsMuse Strike Price update profiles a “return from the past and into the future” look at what many veteran (and former) option mart floor traders had all but given up for lost thanks to the electronification and bifurcation of institutional options trading.

We’re talking about those legacy, open-outcry trading pits, one -time bastions for burly and sharp-elbowed boys from Brooklyn and college ball-players-turned-options market makers and brokers who had reserved trading pit spots for them congregate and serve as liquidity centers for investors and upstairs traders to route and execute both small retail orders and large/complex institutional options orders. According to an article in today’s edition of the MarketsMedia.com newsletter, the options market is having a “Its Déjà vu all over again” moment.

Those who have been around for more than 15 minutes lament the fact that in recent years, those brick and mortar venues have become mere shells of their former selves and in some cases, ghost towns. The American Stock Exchange, arguably the pioneer in options pit trading, was acquired by the NYSE a few years back and is now literally a vacant lot that real estate developers hope to convert into a luxury rental and retail space. Beantown’s BOX might as well be a bowling alley, as trading via that venue is all electronic. One can hear a pin drop on the floor of the CBOE thanks to the ISE, the options market “Dominator” and a completely virtual exchange that has no physical structure other than corporate office space for their execs, and is otherwise comprised of air-conditioned warehouses patrolled by security dogs to protect rows of rack space for computer servers.

John Houlahan, OMEX Systems
John Houlahan, OMEX Systems

Noted John Houlhan, the COO of OMEX Systems, a long time, broker-favored OEMS platform (recently acquired by fintech firm Raptor Trading) and first designed exclusively for agency-only options and ETF floor brokerages operating on the AMEX and since embraced by a number of “upstairs” executing brokers, prop shops and select hedge funds, “Other than a handful of firms that were rolled up, most legacy floor brokerage firms and market-making firms turned in their trading smocks and floor badges long ago.” Added Houlahan, “The others who are relevant in the course of facilitating large block and/or complex options orders for institutional clients or hedge funds now generally operate from loft spaces in tony areas in Chicagoland, offices in various parts of Manhattan and New Jersey offices adjacent to exchange co-location areas.”

BUT WAIT! Everything you just read in that last paragraph is not entirely true; open outcry options trading floors are as relevant as ever, according to coverage from financial media firm MarketsMedia.com.. Here’s an extract from today’s edition of their newsletter, including a look at select veteran options market brokers who have lived to tell the tale… Continue reading →

Strike Price

Add One More Options Exchange To Your Menu-Its About Rebates, Silly!

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MarketsMuse options market update courtesy of extract from our friends at MarketsMedia LLC and their profile of yet another proposed options exchange with yet another “rebate” scheme intended to capture market share in the very competitive world of order routing.

International Securities Exchange will have its ISE Mercury exchange ready for trading by the end of the second quarter, though the launch remains subject to approval by the U.S. Securities and Exchange Commission.

New York-based ISE is the ‘s flagship ISE options exchange has market share of about 10.5%, 3rd-most of 12 U.S. options exchanges, while its Gemini exchange, launched in August 2013, has a 3.1% share, according to the OCC.

Gary Katz, ISE
Gary Katz, ISE

ISE has said Gemini is differentiated by offering transaction rebates to liquidity providers and prioritizing orders based on price, rather than prioritizing orders based on price and time. Mercury is expected to have its own differentiated market structure, though details have yet to be specified.

“We look at our exchanges as a group because they’re intended to work together,” said ISE Chief Executive Officer Gary Katz. “They address certain segments of the market, and offer pricing to attract different types of customers, whether they be professionals or priority customers. This strategy is working well in a super-competitive environment.

For the full story from MarketsMedia, please click here.

Strike Price

ISE To Launch Another Options Exchange Platform

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Below courtesy of extract from Bloomberg LP 29 Sept reporting.

International Securities Exchange Holdings Inc. applied to create its third U.S. options exchange, to be called ISE Mercury.

ISE, a unit of Deutsche Boerse AG that already operates two options venues in the U.S., said the new venue’s structure, fees and products will be made public at a later date. Should ISE Mercury open, it would be the nation’s 13th options market.

“ISE Mercury will use our proven technology platform to service a segment of the options market not currently active on ISE or ISE Gemini,” Boris Ilyevsky, managing director of ISE’s options exchanges, said in a statement. “Our goal is to reach broadly across market segments and to deliver innovative trading functionality, superior customer service and competitive fees to different constituencies in the industry through our three exchanges.”

The firm last year started a second exchange, ISE Gemini, that had a market share of 3.8 percent at the end of last week, according to data from Options Clearing Corp. ISE’s namesake platform’s market share was 11.1 percent, placing it fourth among the 12 options venues.

Strike Price

Taker-Maker Cupcake Baker- Nasdaq BX Options Fee Scheme Takes Hold

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Courtesy of Peter Chapman/TradersMagazine

The launch of the Nasdaq OMX BX options exchange, at the end of June, marked not only the debut of the industry’s 10th exchange, but an expansion of the use of taker-maker pricing.

In contrast to the conventional maker-taker pricing model whereby exchanges pay liquidity providers and charge liquidity takers, BX Options will pay liquidity takers and charge liquidity suppliers. While the scheme is relatively common in the cash equities business, its usage has been limited in options.

Nasdaq has said it expects BX Options to appeal to broker-dealers who are big takers of liquidity and may not be receiving payment for their order flow from intermediaries; or they may be unsure if they are being adequately compensated by their intermediaries. BX Options will not otherwise facilitate payment for order flow.

Professional traders who trade directly on the exchanges rather than go through an intermediary are expected to benefit. So too are some retail brokerages that deliver mostly market, or liquidity-taking, orders to intermediaries.

“Competitively speaking, this is a positive,” said Gary Sjostedt, director of order routing and sales at TD Ameritrade. “It keeps the exchanges on their toes price-wise.”

The BOX Options Exchange actually pioneered the taker-maker pricing strategy in the options market in 2009, but was the only exchange using it until this year. Then, in early June, the International Securities Exchange switched 25 options classes to taker-maker pricing.

BX Options instituted taker-maker pricing on July 2, becoming the third exchange to do so. There are differences among the three offerings. In contrast to the ISE, BX Options will offer taker-maker pricing in all options traded in penny increments. In contrast to BOX, Nasdaq will limit the rebate strategy to customers only.

For most of the BX names, Nasdaq will pay 32 cents per contract on customer orders that take liquidity. That compares with 22 cents for BOX’s “regular” market and 30 cents for trades in its auction. ISE also pays 32 cents per contract. Continue reading →

Strike Price, Tech Talk

ISE Lifts a Leg: Plans to Introduce Yet Another New Options Exchange

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The International Securities Exchange (ISE), the venue that bills itself as the first all-electronics options exchange in the United States will open a second by year’s end. The company has has filed a Form 1 application for a second exchange license with the Securities and Exchange Commission.

No details about the products to be traded, market structure, or fee schedule of the new exchange have been announced – except that it will run on ISE’s “Optimise” technology.

“Our Optimise technology platform was designed to support multiple markets and will enable our member firms to leverage their existing connectivity for our new exchange,’’ said Gary Katz, President and Chief Executive Officer of ISE.

The new exchange, the company said, however, will make use of a new piece of functionality added to Optimise: Legging orders.

According to a document filed with the SEC, a legging order is an order on the regular order book in an individual series representing one leg, or side, of a two-legged complex options order.

A legging order may be automatically generated for one leg of a complex order under two circumstances.

First, when the price matches or improves upon the best displayed bid or offer on the regular limit order book.

Secondly, when the net price can be achieved as the other leg is executed against the best displayed bid or offer on the regular limit order book.

The multiple-legged order type, ISE believes, will improve liquidity for complex orders by enabling interaction between the complex and regular order books.