International Securities Exchange Announces Primary & Competitive Market Makers

The International Securities Exchange (ISE) announced today seven Primary Market Maker (PMM) members: Arbitrade Holdings; The Arbitrage Group; Bear Specialist Inc./Hunter Specialists, LLC; Deutsche Bank Securities, Inc.; Goldman Sachs & Co. and The Hull Group; Knight/Trimark Group, Inc.; and Morgan Stanley Dean Witter & Co. As Primary Market Makers, these firms will provide liquidity in their assigned options by making continuous two-sided markets and ensuring that orderly market conditions are maintained in the first fully electronic options market in the United States. Patrick Whalen, managing director and head of derivatives trading of Morgan Stanley Dean Witter & Co., said, "We are dedicated to creating a more equitable and efficient market structure for options trading. The ISE will provide an environment that is potentially capable of achieving these goals. We look forward to working with the ISE in the further development of their market." The combined trading experience and order flow capabilities of this group of leading institutions will contribute significantly to the launch and growth of the ISE. These firms have successfully traded equities and/or options, "upstairs" and on trading floors and electronic systems worldwide. David Krell, president and CEO of ISE, said, "These firms provide the balance of experience that we have sought. They provide the market making expertise and significant capital commitment that a successful options market requires. The options industry is growing in size and sophistication; we could not have asked for a better team with which to move forward." In addition to these seven PMMs, Adirondack Trading Partners (ATP) will operate two PMM memberships. "ATP is considering the formation of a joint venture with an established options market making entity," said Marty Averbuch, president of ATP, "and this will enable us to contribute liquidity early on." ATP is the consortium of broker/dealers that is funding the ISE, providing the capital necessary to develop the trading and regulatory systems, acquire hardware, and accomplish all other endeavors associated with establishing the Exchange. Scott Prince, managing director of Goldman Sachs, said, "It is clear that electronic platforms create market efficiencies and cost savings that directly benefit our clients. An electronic exchange such as the ISE will provide a competitive alternative for our clients and enable our Hull Group affiliate to more effectively provide liquidity to the options marketplace." Including ATP, these firms will also trade as Competitive Market Makers (CMMs) in 59 of the 100 available memberships. In their roles as Competitive Market Makers, these and other firms will provide additional depth and liquidity. Each CMM will quote independently, thereby ensuring a competitive quoting process that will provide narrow spreads with quotes in size. ATP has been accepting indications of interest from financial institutions and is in the process of negotiating the sale and/or lease of the remaining 1 PMM and 41 CMM memberships. Mr. Averbuch said, "There is very significant interest from international firms, already experienced in electronic trading, and domestic firms involved with the current floor-based exchanges." Ken Pasternak, president and CEO of Knight/Trimark Group, said, "The combination of the ISE's fully electronic options trading platform, a first in the U.S., and Knight's proven business model will provide investors with cheaper and faster execution on all of their options transactions. Knight and the ISE, by setting options execution standards on par with those found in the equities market, will benefit institutional investors and attract self-directed retail investors to utilize options as part of their individual portfolios. Knight believes that the application of best execution standards will be the cornerstone of the options market's evolution and growth in the U.S. and abroad." Peter Hajas, CEO of Arbitrade Holdings, said, "As an established options market maker, Arbitrade understands that a growing need exists for a fully electronic U.S. options trading platform. We believe that our advanced trading technology, which dovetails nicely with that of the ISE, will be a significant addition to the new options exchange. We look forward to working with the ISE and its partners to create a venue in which all investors will win." Ralph Reynolds, managing director, equity derivatives trading of Deutsche Bank, said, "We are excited to be a part of the first completely electronic derivatives exchange in the United States. This is a continuation of Deutsche Bank's electronic business strategy, which is being implemented across the globe. The new environment for exchange traded derivatives should expand the universe of options users and facilitate liquidity in the overall marketplace." Gary Katz, senior vice president of marketing and business development of ISE, said, "The three major deliveries necessary to meet our targeted launch date of March 24, 2000 are on track to completion: regulatory approval, technical systems and memberships. We anticipate SEC approval of our exchange application, the trading system has been accepted by ISE and is currently undergoing stress testing, and this announcement of members is a major step toward the development of deep, liquid markets at the ISE." The ISE plans to list and trade 600 stock options, which will be divided into ten groups of approximately 60 stock options each. Market makers will be assigned to provide liquidity in each group. There are three types of ISE members: Primary Market Maker ("PMM") - PMMs, similar to specialists (DPMs or LMMs on other exchanges), are market makers with significant responsibilities, including overseeing the opening, providing continuous quotations in all of their assigned options classes, and ensuring that customer orders are not automatically executed at prices inferior to those available at other options exchanges. One PMM will be assigned to each of the ten groups of options traded on the Exchange. Competitive Market Maker ("CMM") - CMMs are market makers that add depth and liquidity to the market and are required to provide continuous quotations in at least 60% of the options classes in their assigned group. Each CMM quotes independently. Up to ten CMMs will be appointed to each of the ten groups of stock options traded on the Exchange. Electronic Access Member ("EAM") - EAMs are broker/dealers that represent agency and proprietary orders on the Exchange. An EAM does not purchase a membership. Rather, once approved as an ISE member, an EAM pays an access fee that permits the firm to place orders in all of the options traded on the Exchange. ISE will become the first fully electronic options exchange in the United States and the world's first options marketplace combining electronic trading and auction market principles. On February 2, ISE filed its application for registration as a national securities exchange with the Securities and Exchange Commission (SEC). Upon approval by the SEC, ISE will become the first new registered U.S. securities exchange in 26 years. ISE plans to list options on 600 of the most widely owned and popular stocks. ISE headquarters is located at 60 Broad Street, New York, NY 10004 and can be reached at (212) 943-2400 or, for additional information, visit its web site at www.iseoptions.com.