The ISE Stock Exchange, a unit of Eurex’s International Securities Exchange business, is to become a wholly-owned subsidiary of Direct Edge, the US equity trading platform.
The move means that Direct Edge, which has been actively pursuing US exchange status, will immediately gain direct access to the US National Market System, while also strengthening the firm’s technology and infrastructure to better position itself to meet regulatory requirements.
Eurex, the Frankfurt-based derivatives exchange group owned by Deutsche Börse, acquired the International Securities Exchange, which operates US equities and derivatives trading venues, last April.
Earlier this week, Direct Edge’s fellow ECN, BATS Trading, received approval from the US Securities and Exchange Commission to convert to exchange status. BATS is aiming to complete the transition within 60 days and is urging brokers to complete membership agreements immediately.
“By leveraging ISE’s technology and regulatory expertise and continuing to offer the innovative market structure and order types that have facilitated our significant recent growth, we will be poised to expand upon our established liquidity base and to provide our customers with an industry-leading exchange platform,” said William O’Brien, CEO of Direct Edge.
Direct Edge, which handled 10.06% of all-US listed equities volume in July, with a matched market share of 4.88%, will continue to operate its twin execution platforms, EDGA and EDGX, and will integrate Direct Edge and ISE functionality such as the Enhanced Liquidity Provider (ELP) program and MidPoint Match. The firm will continue to submit two Form 1 applications to gain exchange status for two new subsidiaries for the purpose of operating EDGA and EDGX as newly-registered national securities exchanges. Until SEC approval is granted, Direct Edge will utilise the ISE Stock Exchange for quotation display and trade-through protection in the National Market System, transitioning from the National Stock Exchange early in the fourth quarter.
Upon completion of the transaction, the strategic partners of both Direct Edge and the ISE Stock Exchange will have a combined 68.5% ownership interest in Direct Edge Holdings, with Knight Capital Group, Citadel Derivatives Group and Goldman Sachs each remaining as strategic investors with a 19.9% ownership interest. ISE will own the remaining 31.5% stake.
The transaction will be completed in the fourth quarter of 2008, pending regulatory approvals.