View from the Top: Gary Katz


Five Questions for Gary Katz, President & CEO of International Securities Exchange (ISE)

February 2011


"I started out as an actuary and the boredom of it drove me to graduate school," Gary Katz recalled, looking back on his career. "One day I got a call from David Krell, who at the time ran the options business at the New York Stock Exchange. David was looking for someone with knowledge of indexes. He hired me, taught me about the options industry and changed my life."

After leaving the options business at the NYSE and a brief stint as consultants, Gary Katz and David Krell co-founded ISE with executives from E*TRADE and in 2000 introduced electronic options trading in the U.S. "Electronic trading removes physical barriers. You can be anywhere and still be as much of a participant as anyone else on the exchange," he said. The benefits of electronic trading, which offered enhanced competition and functionality, lower fees and faster executions, enabled ISE to grow rapidly. In 2005, the ISE went public, and in 2007 joined with Eurex. Over the years ISE has continually expanded, adding new products and complementary functionality.

With the U.S. options industry on the verge of another record year, we asked Gary to take a look back at his career and forward for the industry.

What is the biggest change you have seen in the options industry since you started?

"Technology has been the one change that has affected all market participants: the exchanges, OCC, the broker-dealers, and the customers."

"When exchanges were entirely floor-based, trading was done manually. Only a limited number of firms could participate and have a physical presence on the floor, which constrained liquidity. Going electronic has changed the entire experience. You no longer need to be on the floor to have access to the market. Technology has enabled the exchanges to attract more liquidity and do a better job of monitoring risk at the same time."

"Today, OCC is able to process hundreds of thousands of trades and complete the clearing process at the end of the day since there is no need to wait for paper trade records to come in. They also have sophisticated systems that can examine their clearing members' risk profiles on a more frequent basis and adjust margin requirements accordingly."

"Broker-dealers can place trades faster and with less risk. In the past there was not even an opportunity for all of them to participate in a floor-based environment."

"Finally, twenty-five years ago customers were getting their trade information from the newspaper, and the only data available was for the most liquid options. They may have heard about data elements such as volatility or the Greeks but had little access to that information. Today it is at their fingertips. Investors have access to vast amounts of information - trading simulators, pricing calculators and more are all available online."

What has been your greatest challenge?

"At ISE our biggest challenge has been dealing with a regulator that is resource-constrained and inconsistent, which can create an uneven playing field. Sometimes it feels like we have an umpire that keeps changing the strike zone, so we never know how to best play the game."

"It can be difficult to receive approval from the SEC for new products and that delays our time to market. The lengthy delays the industry experienced getting approval for an option on the gold ETF is a good example of this challenge. After that entire process, we still don't have approval to list options on the silver ETF. As a result we end up with products being traded upstairs (off the exchange on the OTC markets) or outside the U.S."

What has been your personal proudest moment?

"I was proudest of ISE the day we went public in 2005. When a company goes public, it is a milestone that represents the culmination of all the work that led up to the IPO. I'd compare the experience to having a child. In the beginning we talked about what ISE could be and the potential for the exchange, but there was no way to fully prepare for what would happen when launch day arrived."

"Right after launch, ISE was like a newborn baby because it didn't really do anything. It took time for the business to take off but slowly we started to crawl, then walk and finally run as ISE gained traction and started to reshape the competitive dynamic of the industry. The day ISE went public felt like graduation day. We were incredibly proud as we rang the opening bell at the NYSE."

What has been the impact of financial advisors’ growing use of options?

"Advisors are helping to communicate that options are an asset class that can't be ignored. We have tried to educate investors on this through seminars and webinars, and now advisors are helping us with this critical outreach."

"By reaching out to advisors we are able to reach a far larger audience. Advisors are the foot soldiers in our efforts to reach more investors, which is the key to maintaining the substantial growth we have enjoyed in recent years."

Where do you see the industry in 2015?

"I expect more exchanges to enter the industry and that the strong competitive dynamic will present fantastic opportunities for investors. Recent changes to options symbology have already made space for new products such as weekly options, and I expect more product innovations in the future."

"The industry's marketing will also become more sophisticated and more focus will be placed on customer service. The institutional sector of the market has increased its use greatly in the last three years and all studies indicate there will be growing interest among that segment going forward."

"All of this activity will benefit the investor and the industry - there is still plenty of room for growth. I'm very bullish on our industry's future."


Name Gary Katz
Position President & CEO International Securities Exchange (ISE)
Education BA Queens College, MS in Statistics New York University
First Job Actuary, Equitable Life Assurance Company
Other Employment New York Stock Exchange, K-Squared Research
Achievements Inventor or co-inventor on six patents ISE has received or applied for
Co-founder of The Options Industry Council
Adjunct Professor of Statistics at the Stern School of Business, New York University
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