July 7, 1999
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0609
RE: File No. 10-127
Dear Mr. Katz:
Thank you for providing us with the opportunity to express our views on the application of the International Securities Exchange ("ISE") seeking registration as a national securities exchange under the Securities Exchange Act of 1934 (the "Application"). We believe the Commission should approve the Application and grant ISE's request to be registered as an exchange because the ISE will enhance competition in the options markets.
Herzog Heine Geduld has been a market maker in securities for more than 70 years. While we are best-known for our participation in the development of the Nasdaq Stock Market, we have also handled a significant amount of orders for our customers in listed options.
Nasdaq has flourished because it has fostered competition for order flow among its members. Market makers have competed for the business of their customers through the development of innovative systems and constant improvements in service.
In an effort to attract order flow from the traditional options exchanges, ISE intends to create an automated trading system. We cannot comment on the mechanics of this system because we have not witnessed its operation. However, the innovation of automated trading systems, currently absent in the US options markets, will likely cause traditional options exchanges to introduce their own variant of automated trading systems. In turn, ISE will have to engineer systems improvements to retain its customers and attract order flow. The result of this competition among market centers should be lower transactions costs, better options pricing and improved customer service.
We are also impressed with the quality of personnel and alliances that ISE has formed in its efforts to modernize the US options markets. We have worked with several members of ISE's staff in other business ventures and recognize their proven ability to evolve innovative ideas into practical and profitable business realities. ISE is using OM Technology of Sweden, the world's leading developer of electronic derivative markets, to provide its trading system, and has obtained its technology platform from Compaq Computer.
We very much appreciate this opportunity to explain the reasons for our support of the Application by ISE to establish an options exchange under the Securities Exchange Act of 1934. Please call me at(201) 418-4100 if you have any questions.