Nasdaq Preps ISE Migration
The market operator plans to keep ISE functionality while moving the three options exchanges onto Nasdaq architecture.
During a record low in options trading volume and volatility, Nasdaq plans to kickstart opening liquidity on the ISE by adopting a tweaked version of the process used by Nasdaq PHLX exchange.
“But that is not carved in stone,” said Kevin Kennedy, vice president and head of US options at Nasdaq.
The global exchange operator still needs approval from the U.S. Securities and Exchange Commission to introduce the necessary rule changes.
“We do not want to break new ground right now during the integration,” he added. “By in large, we are going to use the ISE rule set. Where we deviate, we will use a rule set that already exists.”
Nasdaq is still developing its proposed rule changes but is in regular communications with the regulator.
“We know when dealing with a regulator, communication is key,” said Kennedy.
At the same time, Nasdaq officials plan to have the openings for its ISE Gemini and ISE Mercury markets to be similar to those of the Nasdaq Options Market and Nasdaq BX Options Exchange.
“We look to give our market makers a bit of a breather on the other two exchanges to get their quotes in there fast,” he said.
The next step for Nasdaq’ ISE integration will happen on September 15, when it’s slated to release the migration specifications to market participants.
The exchange operator then plans to provide a migration testing platform in early December.
“Those dates are on target, and things are going well,” said Kennedy. “People are working around the clock to get this done in time. And for now, it’s going well.”
Kennedy’s team looks to complete ISE Gemini’s migration on June 1, 2017. The ISE and ISE Mercury should finish their migration by July 1 and August 1 respectively.
Throughout the process, ISE participants will need to maintain their connections to the ISE markets in Equinix’s NY4 data center before moving to Nasdaq’s Carteret facility after each switchover is completed.
It is an opportune time for Nasdaq to make the switch while the options market is in a doldrum, according to David Weiss, a senior analyst at industry research firm Aite Group.
“Volatility is down, and volumes are down,” he said. “The market seems to be waiting for both to return, which they will with a bang.”