In the derivatives space, there has been a consolidation or a proliferation of exchanges, depending on how you see it.

While the number of futures exchanges in the US has shrunk to two major players, International Securities Exchange president and CEO Gary Katz has seen the opposite happen in the US options marketplace. The number of US options exchanges is now 12, with ISE adding the latest options exchange called ISE Gemini last year.

Some exchanges, such as ISE, now have two or more exchanges which they operate with different pricing and trading platforms. The goal to differentiate has spurred more competition among exchanges, which Katz says, is much different in the options space than the futures arena.

“There’s no question in my mind, there will be more exchanges,” Katz said. “With the regulatory structure that we have in the US, that requires that you have a separate SRO (self-regulatory organization) to offer a different fee structure or market structure, you are forced to create another exchange to offer that segment of the marketplace a different opportunity for trading.”

The challenge for exchanges today, he said, is to rebuild trust in the marketplaces. Some of this will be forged through regulation, but also from improvements made by the securities industry itself.

“The challenge to the exchanges and the management of the exchanges is how they are going to deal with that, how they are going to prioritize the work that needs to be done, and deliver on the promise that everyone is looking to the exchanges to deliver,” Katz said. “And that is, protect the markets and bring back that trust in the marketplace.”

In terms of growth, Katz said options exchanges have done a good job of delivering new contracts that its customers want. He pointed out that the options industry has done well with new products such as: weekly options, new index options, currency options and options on ETFs.

“What we have found is the customer has embraced all of those choices, giving them more opportunities to fine tune their trading,” Katz said.

One of the key factors every exchange has is in their technology. The ISE, which is owned by the German exchange Eurex, recently rolled out its latest trading platform, which includes the ISE. Among the improvements, said Katz, is how the ISE and Eurex “roll out new software onto new technology.”

“It’s allowed us to add new products, so by the end of March, we’ll have added 200 more options onto ISE Gemini, which is something in the past that took a long time,” Katz said.

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