The International Securities Exchange: New Ground in Options Markets

On Monday, September 23, 2002, David Krell and Gary Katz sat down for a lunch meeting. As the CEO and chief operating officer (COO), respectively, of the International Securities Exchange (ISE), the two executives had a great deal to discuss. First, however, they took a moment to congratulate each other on the exchange's progress. According to a report by The Options Clearing Corporation (OCC), month to date the ISE had 26.03% of the market for trading options on the 506 issues it listed. The ISE had traded a total of 7,361,341 options contracts from September 3, 2002 to September 20, 2002. Its share of trading ISE-listed options put the exchange in first place for September, ahead of the Chicago Board Options Exchange (CBOE), the industry's longtime champion.1 Feeling somewhat vindicated by the exchange's recent success, Krell and Katz thought back to the ISE's early days.

The ISE's creators had known that, for a market to be successful, it had to attract enough participants to act as buyers and sellers. On the other hand, nothing attracted buyers and sellers more than a successful market. You had to build the egg, but you could not ignore the chicken either. Krell and Katz had begun investigating the prospects for building the ISE, an all-electronic options exchange, in 1997. No mysterious voice had whispered to them, “If you build it, they will come.” Rather, there had been a collective plea from the discount ...

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