When Nasdaq bought the Philadelphia Stock Exchange in 2007 for $652 million, it was far from clear what the future would hold for the Market Street operation, the oldest exchange in the country.
By one key measure, things have gone extremely well. The exchange, now known as Nasdaq OMX PHLX, has continued gaining market share in its specialty - facilitating trades of options to buy and sell shares of stock in publicly traded companies, as well as options based on indexes.
Since 2008, PHLX, which does most of its business electronically but still has a trading floor, has moved from third to first in market share in stock-options trading - 23.5 percent this year through August - passing the International Securities Exchange and the Chicago Board Options Exchange.
"It's a real accomplishment for us and for Philadelphia," said Tom Wittman, who has worked at the Philadelphia exchange since 1987 and is now president of PHLX and a Nasdaq OMX senior vice president in charge of its options operations, which include the Nasdaq Options Market.
At the end of August, PHLX still trailed the Chicago exchange in overall options volume, 21.9 percent to 25.6 percent, according to the Options Clearing Corp.
The Chicago Board Options Exchange, which has proprietary products such as options on the S&P 500 index and the CBOE Volatility index, has a stranglehold on options that are not based on equities. While such options account for just 7 percent of overall volume, the Chicago exchange handled 94 percent of them this year through July.
PHLX is increasing market share when the overall options industry is going gangbusters. Options allow investors - at the simplest level - to make bets on changes in stock prices without putting as much money at risk as buying shares would require.
"Trading volume has really soared over the past decade. Since 2001, we're seeing a compound annual growth rate of 19 percent trading volume," said Andy Nybo, principal and head of derivatives at the Tabb Group, a New York financial-markets research and strategic advisory firm.
While the number of employees at PHLX has fallen to 125 from about 380 since Nasdaq took over and consolidated many of the exchange's business functions, there was a time when it seemed that PHLX would disappear entirely, as did most other regional exchanges in the United States.
In the late 1990s, after a period of turmoil and infighting, the PHLX was nearly shut down by the Securities and Exchange Commission because its technology was out of date and it had a long record of trading violations.
The SEC forced changes at the exchange, including a new board with more independent directors than insiders. Meyer S. Frucher, a New York executive, was brought in to sell the exchange.
A proposed merger with the American Stock Exchange fell apart in 1999, but in 2005 and 2006, Frucher sold 89.4 percent of the exchange to six big options trading firms.
Those firms started bringing more business to Philadelphia, creating the "foundation for growth over the last couple of years," said Sang Lee, managing partner at Aite Group, a financial-services consulting firm in Boston.
The six trading firms also made a bundle on their $33.75 million investment when Nasdaq bought PHLX.
The sale brought no guarantee that the former owners would continue trading in Philadelphia, but Wittman took steps to keep them there, including a $75,000-per-month cap on fees. "That helped them stay engaged at the PHLX," Wittman said.
Wittman, whose background is in software development, has also kept tweaking PHLX's pricing and its technology systems, which are key to competing on price with eight other options exchanges.
"After the Nasdaq took over, they [PHLX] were a little more aggressive about being a front-runner in terms of technology," said Andy Yang, regional manager for the Cutler Group L.P., a San Francisco firm with operations at exchanges in Chicago and New York.
Jim Rogers, a 17-year veteran of the PHLX trading floor and a partner in PTR Inc., a floor brokerage, said he liked seeing Wittman and people who work for Wittman on the floor. "They work with us to grow the business," he said.