What Is the Intermarket Trading System (ITS)?

The Intermarket Trading System (ITS) was an electronic network connecting nine American stock exchanges, allowing brokers and market makers to find and execute the best available prices. It started in 1978 but was phased out starting in 2000, with Nasdaq withdrawing in 2006. Nasdaq's departure paved the way for its adoption of more advanced technology, such as the electronic communications network (ECN), leading to the creation of the Nasdaq Market Center Execution System.

Basics

The Intermarket Trading System, a pioneering electronic network in the world of finance, transformed the landscape of stock trading. This system served as a vital link, connecting the trading floors of nine prominent American stock exchanges. By offering a unified platform, ITS empowered brokers and market makers across these exchanges to efficiently locate and execute trades at the best available prices.

ITS Interconnected Exchanges

ITS interconnected a formidable lineup of exchanges, including:

• New York Stock Exchange (NYSE)
• American Stock Exchange
• Boston Stock Exchange
• Chicago Stock Exchange
• Cincinnati Stock Exchange
• Pacific Stock Exchange
• Philadelphia Stock Exchange
• Cboe Options Exchange (Cboe)
• National Association of Securities Dealers (NASD)

This interconnectedness eliminated the need for brokers on one exchange to route their orders through brokers on other exchanges. Such a revolutionary system was essential for streamlining trading processes, optimizing efficiency, and ensuring traders could seize opportunities swiftly.

A Brief History

The year 1978 marked the birth of the ITS. During this era, trading predominantly relied on manual processes executed by traders physically present on bustling trading floors. However, ITS emerged as a harbinger of change, hinting at the digital future of financial markets.

While ITS was a game-changer in its time, its relevance gradually waned. In the year 2000, the NYSE made a momentous decision to discontinue its use of the aging ITS. This marked the beginning of ITS's decline, signaling the inevitability of change in the world of financial technology.

The most notable exit from the ITS partnership came in 2006 when Nasdaq, a significant player in the financial markets, decided to part ways. Nasdaq deemed the technology behind ITS as outdated and incompatible with an exchange that operated without a physical trading floor.

Nasdaq's Technological Leap

Nasdaq's withdrawal from the ITS was not merely a strategic move but a technological leap forward. It was a declaration that the future of trading lay in more advanced systems. Nasdaq cited the outdated nature of ITS and advocated for a more technically advanced, private system.

This decision dovetailed perfectly with Nasdaq's acquisition of Brut LLC, a company operating an ECN. Nasdaq's new ownership of an ECN marked a pivotal moment in its journey toward technological advancement. This private ECN empowered Nasdaq to refine its technology and order-routing systems independently, unburdened by the need for approval from other exchanges.

Nasdaq's ECN

With the ITS in the rearview mirror, Nasdaq invested in building a robust platform anchored by its ECN. The ECN facilitated open-access communication and trading, marking a fundamental shift in how financial markets operate. Nasdaq's ECN was not an isolated entity; instead, it was intricately linked with other market centers trading Nasdaq securities and various national securities exchanges, including the NYSE.

To further strengthen its position, Nasdaq integrated its ECN system with other tools like SuperMontage and INET. This fusion gave rise to a comprehensive system now known as the Nasdaq Market Center Execution System.

Conclusion

The Intermarket Trading System was a revolutionary force in the world of stock trading, connecting nine American stock exchanges and streamlining the trading process. However, as technology advanced, ITS became outdated, leading to its phased withdrawal. Nasdaq's departure from ITS marked a turning point as it embraced more advanced technology, particularly the electronic communications network, which played a pivotal role in shaping the modern landscape of financial markets. Today, Nasdaq's Nasdaq Market Center Execution System stands as a testament to the ever-evolving and technologically driven nature of the financial industry.