What is an International Securities Exchange?

An international securities exchange is an online marketplace where investors can trade derivatives based on underlying products from across the world. These exchanges exist in various countries, but the phrase most commonly refers to International Securities Exchange, which is often abbreviated as the ISE. This limited liability company operates an online options trading exchange based in New York City. Along with its parent company, which is owned by German and Swiss organizations, it forms the largest derivatives trading operation in the world.

Exchanges are marketplaces in which investors can trade financial instruments. The responsibility of an exchange is to facilitate trading by matching bidders and sellers who are willing to exchange a product for the same price, and each exchange decides which products its participants may trade. Historically, exchanges were floors where traders wrote down bids in books and matched offers manually. Recently, electronic exchanges have become part of global trading. Investors can submit bids electronically, and trades are matched and executed by a computer.

The International Securities Exchange was the first completely electronic options trading exchange in the United States. Since 2007, it has operated as an independent subsidiary of Eurex. The Deutsche Borse Group and SIX Swiss Exchange AG own Eurex, which is a global exchange that specializes in derivatives.

Executives with experience at E*TRADE and the New York Stock Exchange founded the International Securities Exchange in 2000, but the idea for it arose in 1997. Marty Averbuch and William A. Porter, of E*TRADE, and Gary Katz and David Krell, of the New York Stock Exchange, discussed the possibility of an electronic options exchange and joined together to create Adirondack Trading Partners, a company to raise funds to start the exchange. This was accomplished by 2000, and the exchange began operating out of New York. In 2006, the exchange was restructured as a holdings company with a limited liability company subsidiary. It was acquired by Eurex in 2007, and at that time it changed from a publicly traded to a privately owned company.

The exchange focuses on consolidating options trading in one electronic marketplace, and to further this goal it frequently expands to include new products. It has added to its equity, exchange traded fund and foreign exchange option lines. The exchange introduced index options in 2003, becoming the first electronic marketplace for indexes. Then, it expanded into short-term options with quarterlies in 2006 and weeklies in 2010.

To participate in trades on the International Securities Exchange, an investor must be a member of the exchange. Membership is limited to broker-dealers who are registered in the United States. They must belong to at least one other self-regulatory organization, and they must be cleared by an approved organization. Traders who meet these criteria may submit a membership application.