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Direct Edge Joins Forces with ISE Stock Exchange

International Securities Exchange takes ownership stake in Direct Edge

As the second largest ECN, Direct Edge handled 10.06 percent of all U.S. listed equities volume in July with a matched market share of 4.88 percent. It will continue to operate its complementary twin execution platforms, EDGA and EDGX, and plans to integrate the best of Direct Edge's and ISE's unique functionalities, such as the Enhanced Liquidity Provider (ELP) program and MidPoint Match. Direct Edge will use the ISE's technology to improve the latency, capacity and exchange readiness of its trading platform, according to the release.

In a statement, Gary Katz, president and CEO of ISE said, "We have successfully grown the ISE Stock Exchange to the point where it is today, and are confident that this partnerships with Direct Edge is the logical next step that will enable us to continue our strong growth in the U.S. equities market."

Commenting on the deal, Sang Lee managing partner, called the Direct Edge/ISE alliance an interesting partnership in light of BATS Trading obtaining an exchange license. However, Lee cast doubt on whether small U.S. equities exchanges can survive. "It is clear that based on their integration plan, this is a temporary solution and in essence, the ISE will be shutting down their equities operations in favor of Direct Edge. This certainly confirms what we have known for a few months now: the smaller U.S. equities exchanges have been relying on their relationships with ECNs to boost their volume and as the two largest ECNS (BATS and DirectEdge) move toward becoming exchanges themselves, the future viability of the smaller equities exchanges were in doubt," wrote Lee in an email commentary.

Direct Edge is continuing with its 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 utilize the ISE Stock Exchange for quotation display and trade-through protection in the National Market System, and transition away from the National Stock Exchange (NSX) early in the fourth quarter. This will give Direct Edge full control of its presence in the NMS through its affiliation with ISE while its exchange applications are pending approval. ISE will also provide data center and regulatory services for Direct Edge subsidiaries once they become part of the NMS.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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