What Is the Intermarket Trading System (ITS)?

The Intermarket Trading System is an electronic computer system that joins the trading floors of all of the major American equity exchanges. This system essentially allows all eligible member market-makers and brokers the ability to execute buy and/or sell orders at different exchanges whenever they see that a better price quote is available. The system has connections with large national exchanges, such as the NYSE, as well as smaller regional exchanges, such as the Boston Stock Exchange.

How the Intermarket Trading System (ITS) Works

Since the Intermarket Trading System was first initiated during 1978, some parties, such as the NASDAQ, came to believe the technology used in the ITS was outdated. Moreover, the current trend for exchanges was moving away the trading floors that the ITS was based on and toward automated trading systems.

Intermarket Trading System and Nasdaq

in 2005, NASDAQ announced its intentions to withdraw from the ITS by 2006. The ITS was originally created when most trading happened through a manual process by floor-based traders.

Since then, new and more innovative systems have emerged for conducting trade activity in a fast, connected atmosphere. In announcing its withdrawal from the ITS, NASDAQ cited the outdated setup of the system, and said a private, more efficient and high-tech linking system would be a better option. That position aligned perfectly with NASDAQ’s recent acquisition at that time of Brut, LLC, which maintained an electronic communications network.

At the time, Chris Concannon, executive vice president at NASDAQ Transaction Services, said the move would help NASDAQ capture market share from NYSE. He described the markets as being in the midst of a full changeover to trading activity happening more in automated trading alternatives like NASDAQ, rather than trading floors. The NASDAQ's withdrawal from the ITS reflected the belief that trading NYSE-listed stocks on electronic venues would continue and get stronger. 

The withdrawal from the ITS allowed the NASDAQ to improve its technology and order-routing systems without needing to go through an approval process that includes other exchanges. Private linkage also enabled NASDAQ to better handle the increasing flow of orders coming from electronic traders, who used computer programs to buy and sell stocks.

The NASDAQ now has a platform called the NASDAQ Market Center, which uses an electronic communications network, or ECN. The ECN enables automated, electronic communication and activity. Systems are linked to other market centers that are trading NASDAQ securities, along with other national securities exchanges, such as the NYSE. NASDAQ has integrated its ECN system with other tools, including SuperMontage and INET, to form a comprehensive system that came to be known as the NASDAQ Market Center Execution System.