July 12, 1999
Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: International Securities Exchange, File No. 10-127; Release No. 34-41439
Dear Mr Katz:
The creation of a new option exchange, the ISE is long overdue and greatly welcomed. For the past 20 years the existing option exchanges have experienced near monopolistic power over the investing public both institutional and retail. The rules that these exchanges have written have been weighted in favor of the trading members of these exchanges (market makers and specialists). Competition amongst market makers in specific crowds has left much to be desired. These trading crowds have learned it is more profitable to work with each other, instead of competing for order flow, which in turn has kept quoted markets artificially wide.
Today there is a strong old boy network among the existing option exchanges. The creation of the ISE will add greatly needed competition to the options markets. Screen quoted spreads of option prices will narrow, as trading crowds and exchanges will compete to attract order flow. This has already been proven in a handful of multiple listed stocks where crowds from different exchanges compete with each other. For years the existing exchanges have resisted dual listing each otherís actively traded stocks, to the detriment of the trading public.
The ISE has proposed allocating order flow to traders making markets in a unique fashion. The size that a trader quotes on an electronic screen will directly dictate the percentage of an order that a trader is entitled to. This physical quoting of size will greatly improve the liquidity of the options markets, and more importantly the transparency of the market. Today when you trade with the existing exchanges, liquidity of the market a large percentage of the time is a guess. Transparency which would promote trading is nonexistant.
Additional benefits I forsee because of the ISE. (1) Reduced transaction costs, because floor brokers will no longer be necessary. (2) Less physical paperwork as it should be easier for existing technology to be integrated with an electronic exchange. (3) Significantly reduced exchange fees as exchanges compete with each other to attract order flow (already beginning to happen).
We are a strong supporter of the ISE. The benefits of increased competition amongst option exchanges will greatly benefit both the retail and institutional community. We are looking forward to trading on the ISE and strongly urge the commission to approve their application for registration as a national securities exchange as quickly as possible.
[Click here and type your name]
[Click here and type job title]