Investors team up on electronic exchange

E*Trade founder William Porter is leading a group of investors who plan to launch an electronic exchange that will take on traditional options markets.

The International Securities Exchange would challenge traditional floor-based trading, such as the Chicago Board of Exchange. It will deal in options -- the rights to buy or sell shares of stock -- for 600 companies. While the exchange will focus on providing fast, cheap trades to brokers and dealers, it has also arranged for so-called "market makers" to have seats on the exchange. Market makers continuously offer to buy and sell, in order to ensure that there is always a ready supply of options.

E*Trade will provide some of the seed money for the new exchange, as will several other broker-dealers, officials said.

The exchange will use Alpha-chip technology from Compaq Computer Corp. (NYSE:CPQ), officials said.

The ISE said it would file with the Securities and Exchange Commission by the end of the year, and plans to start trading by 2000.

The idea of an electronic exchange is not new. Wit Capital Corp. has been discussing setting up an online stock exchange for some time, and has already registered with the SEC. Plans call for that exchange to begin trading sometime next year. And many after-hours trades already take place online.

Softbank, the majority shareholder of Ziff-Davis Inc., has an equity stake in E*Trade.