Innovation, Technology Propel CHX Volume In '99 - Exchange Shatters Annual Volume Record - CHX Leads Industry With Innovative E-Session Extended Trading Hours - OTC Program Expands As Volume Takes Off

The Chicago Stock Exchange (CHX) again posted industry-leading volume growth in 1999 as it further expanded its innovative initiatives and firmly established itself as a growing competitive force in the U.S. equity markets. CHX 1999 trade volume increased 86 percent over 1998 to a record 30,395,920. Share volume also hit a record 14,398,470,523, an increase of 59 percent over the previous year. Since 1996, CHX annual volume has more than tripled. For the month of December, trade volume was 4,431,415, a 140 percent increase over December 1998, while monthly share volume was up 107 percent over last December to 1,993,297,981. "While technology created challenges for others in the financial services industry in 1999, it presented the CHX with a number of opportunities. Several years ago, the Exchange decided to invest in an infrastructure that was technology centric, customer driven and investor focused. That decision is paying off now in terms of increased volume and greater flexibility in meeting the changing needs of investors," said Robert Forney, CHX president and CEO. Two programs in 1999 demonstrated the CHX's innovative response to the changing dynamics of the U.S. equity market. With the Oct. 29 launch of its "E-Session," the CHX became the first Securities and Exchange Commission (SEC)-registered securities exchange to offer an extended trading hours session from 3:30 p.m. to 5:30 p.m. Central Time. Also during 1999, the CHX won approval from the SEC to trade an additional 500 Nasdaq-listed stocks, bringing to 1,000 the total number of stocks eligible for trading in its OTC (Over the Counter) Program. "With an efficient, flexible infrastructure and a focused membership, the CHX has shown that we can respond as fast or faster than anyone in the industry to offer customers and investors what they want when they want it," said Andrew A. Davis, CHX vice chairman and CEO of the Rock Island Company. Volume in the OTC program skyrocketed to 7,562,453 trades, up 1,926 percent from 1998, and 2,770,968,890 shares, up 643 percent from last year. "By listening to our customers and meeting their needs with fast, low-cost, high-quality executions, the CHX was able to post dramatic growth in trading in Nasdaq-listed stocks," said Andrew Kolinsky, CHX executive vice president, marketing and operations. In the CHX's new 3:30-5:30 E-Session, initial volume was light, as expected. However, since the CHX launched its E-Session, the Exchange has seen a significant volume increase in its existing 3:00-3:30 after-hours session. That trading session, launched in June 1996, is targeted primarily at institutional investors. Share volume in the 3:00-3:30 session grew 26.4 percent in 1999 to 286,197,351. "We expected the E-Session to grow slowly, but we are confident that it will be a success because the session makes it easier for investors to buy and sell stocks during the hours that are most convenient for them," Kolinsky said. "The attention surrounding the new program helped boost volume in our existing extended hours, and we hope to see similar growth in the E-Session as it matures." According to CHX officials, the Exchange's success in 1999 was built in large part on its flexible, efficient infrastructure. The CHX combines the benefits of a specialist- and floor broker-based auction market with the speed and efficiency of an electronic order routing and execution system. "Rather than viewing technology as the enemy, the CHX has led the industry in integrating electronic and floor-based trading in ways that give our customers the best of both systems," Davis said. "There's always room for improvement, but I believe the CHX has more of the pieces in place than any other exchange." Over 90 percent of the CHX's trades are executed through its electronic execution system, MAX. This system links brokerage firms throughout the U.S. and Canada with CHX's trading floor. When an order is directed to the CHX, the MAX system electronically routes the order to the specialist. MAX can either execute the order immediately or maintain the order electronically in the specialist's book and execute it as the order becomes price eligible. With this system in place, the vast majority of orders are executed in seconds, yet specialists are present to make two-sided markets. The CHX also is home to the largest floor broker operation outside of the New York Stock Exchange. Floor brokers focus primarily on institutional block trading, which accounts for approximately 50 percent of CHX share volume. Unlike other exchanges, CHX institutional brokers are located on the trading floor, giving them instant access to the Exchange's trading systems and specialists. "The year 1999 was a time of change at the CHX: the OTC initiative, the launch of the E-Session, preparation for decimalization, expansion of internet services and Y2K preparedness. By using technology where appropriate, the CHX improved its operational efficiency at the same time that it grew its volume dramatically," said Steve Randich, executive vice president, information systems and chief information officer. "The CHX demonstrated this by its ability to handle the unmatched growth in OTC issues and its ability to quickly launch the E-Session." "During 1999 we saw the beginning of many changes in the financial services industry, but through all that went on, it became more evident than ever that the CHX is on the right track for continual success by providing what's needed: low-cost, high-quality, fast execution and single market access for trading both exchange-listed and OTC issues," Forney said.