Eurex/ISE Merger Starting To Pay Dividends
A Stifling Transaction?
When Eurex acquired the International Securities Exchange (ISE) last year, the acquisition sent shudders throughout the options world. The ISE had long been known as an innovator in the U.S. options market.
However, there were concerns that the monolithic structure of Eurex, along with its markedly different corporate culture, could stifle the leading U.S. equity options exchange.
There were also concerns regarding how these two entities would collaborate in the future. There certainly are a number of synergies between the two exchanges including highly complementary product lines and memberships. Unfortunately, the current regulatory environment makes it very difficult to exploit these synergies.
When Eurex acquired the International Securities Exchange (ISE) last year, the acquisition sent shudders throughout the options world. The ISE had long been known as an innovator in the U.S. options market.
However, there were concerns that the monolithic structure of Eurex, along with its markedly different corporate culture, could stifle the leading U.S. equity options exchange.
There were also concerns regarding how these two entities would collaborate in the future. There certainly are a number of synergies between the two exchanges including highly complementary product lines and memberships. Unfortunately, the current regulatory environment makes it very difficult to exploit these synergies.
The Fruit Of The Merger
Some of the rumors and concerns surrounding the Eurex/ISE merger can finally be laid to rest. Although it has only been a few months since the deal was completed, we are already beginning to see dividends from this controversial transaction.
Eurex and ISE, along with the Options Clearing Corporation (OCC), recently announced the establishment of a transatlantic trading and clearing link. This announcement was made at the annual Futures Industry Association (FIA) Expo in Boca Raton, Florida.
Across The Pond
This transatlantic trading and clearing link will allow Eurex customers to execute ISE options orders through their existing Eurex connections. The orders will originate on Eurex, but that is the only difference between the linked orders and traditional ISE options orders.
ISE market makers on the other sides of these trades should not notice any differences in the order flow. That similarity will also carry over to the clearing side of these transactions. The OCC announced that it will clear these trades in the same manner as a standard ISE options trade.
Not The First Time
This is not the first attempt to launch a transatlantic trading and clearing link. A similar link was established over twenty years ago between Amsterdam and the U.S. Although the Amsterdam initiative was decades ahead of its time, it was also a victim of its own time. The link was activated only a few months before the infamous 1987 market crash.
The benefits of the new transatlantic link to ISE and Eurex are obvious. Eurex customers gain access to an entirely new marketplace while ISE gains a new source of order flow. With roughly 15-20% of total U.S. options volume originating overseas, the potential influx for ISE is enormous.
Green With Envy
The OCC acknowledges that ISE and Eurex are the only exchanges currently establishing such a link.
However, if the ISE experiences a substantial increase in volume, expect rival exchanges (such as NYSE Euronext) to begin exploring similar arrangements very soon.
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The benefits of the new transatlantic link to ISE and Eurex are obvious. Eurex customers gain access to an entirely new marketplace while ISE gains a new source of order flow. With roughly 15-20% of total U.S. options volume originating overseas, the potential influx for ISE is enormous.
Green With Envy
The OCC acknowledges that ISE and Eurex are the only exchanges currently establishing such a link.
However, if the ISE experiences a substantial increase in volume, expect rival exchanges (such as NYSE Euronext) to begin exploring similar arrangements very soon.
About Mark S. Longo
Mark S. Longo is the founder of The Options Insider Inc. - a firm dedicated to providing free options information, education, news and analysis for options users. Whether it's on TheOptionsInsider.com, a leading online options destination; through Options Insider Radio, the world's only radio network for options users; or through a growing number of newsletters and live events, Mr. Longo continues to provide new ways to spread the word about options.Mr. Longo's analysis of the options market has appeared in a wide variety of domestic and international publications, including The Wall Street Journal, Financial Times, Reuters, Futures Magazine, and more. As one of the few industry commentators with practical options experience, he has developed a substantial following among industry veterans and newcomers looking for insight into this complex market.Mr. Longo began his career as an options trader on the floor of the Chicago Board Options Exchange.
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