The International Securities Exchange won a hard-fought, 20-month legal battle that culminated with the SEC finally blessing its qualified contingent cross order type. Approval was given in the face of near-unanimous opposition by the traditional options exchanges, led by the CBOE and NYSE Euronext. In victory, the ISE launched the new order type just a few days after it was approved, and has since said that demand has been healthy. 

But some are wondering if this is yet another sign that the options market is heading down the same market structure path stocks have already traversed. 

So what is a QCC order? The order type allows orders for 1,000 option contracts or greater that are "fully hedged" via the underlying stock to be crossed by the ISE without exposing that set of linked orders to other execution venues. The transaction must be at the NBBO or better. 

The ISE pioneered the order type to compete with pre-arranged orders that are crossed by more traditional options exchanges, such as the CBOE, Nasdaq OMX PHLX, or NYSE Amex and Arca, all of which operate floors. The ISE wanted a piece of that market, sensing that orders with stock and options components built in were only going to rise. The main options exchanges fought back, portraying the order type as a way to deny end investors the chance at the price improvement that comes from the public display of the order. (Here are the NYSE Euronext's arguments.)

The argument obviously didn't sway the SEC, perhaps because the chance of price improvement via another exchange was very low with such pre-arranged orders anyway. 

In the aftermath of the decision, many suggested other exchanges would have no choice but to offer a competing order type. The NYSE in fact quickly launched its own QCC. We'll see others follow suit. 

For some observers, the issue here is market structure. We've suggested in the past that the options markets was indeed moving down the same structural path as the equities market, adopting decimalization and other changes, for example. Does the approval of the QCC hasten that trend? Some have couched the idea of QCC execution as akin to internalization via dark pools. The ISE scoffs at the notion. But we may be moving a bit closer to more widespread use of dark pools for options, for example. There are a lot of finer points at play, mainly that dark pools for options--there are very few--essentially amount to orders matched off an exchange floor but then marched back to the floor for execution. That may not be a dark pool in the equities sense. But such off-exchange matching was a definite precursor to alternative venues in the stock market. - Jim