Financial Instruments and Markets: A Casebook

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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 ...