The head of Direct Edge, which runs the third-largest U.S. equity platform, said it plans to diversify into options and other asset classes.

Direct Edge doesn't plan to follow rival BATS Global Markets with its own options exchange or futures market, but will leverage its electronic trading infrastructure in other segments.

"We're thinking about it more in terms of execution services in related products," Chief Executive William O'Brien told Dow Jones Newswires.

The New Jersey-based electronic market operator has claimed nearly 12% of U.S. cash equity trading through a combination of low fees and innovative order types.

The privately-owned company now aims to expand into other asset classes, and potentially other regions, as it pursues exchange status in the U.S. and constructs a new technology system, both of which are targeted for early 2010.

O'Brien said that while exchange operators like NYSE Euronext (NYX) and Nasdaq OMX Group Inc. (NDAQ) operate derivatives platforms alongside equities, the markets aren't properly integrated to save customers money.

"We want to bring these markets together at the exchange level in a way that makes it more efficient for people who are trading these various instruments," O'Brien said.

O'Brien cited the buy-write strategy as an example, in which an investor sells call options to cover an underlying stock position, thereby hedging downward moves in the stock.

"With an equities exchange, you can provide linkages to do that more efficiently," he said.

To secure cheaper executions across multiple asset classes, Direct Edge will develop new internal systems and consider acquisitions, O'Brien said.

The company doesn't anticipate building a clearinghouse, but will work with established clearing entities that handle other asset classes.

"Clearinghouses in certain of these products will create a community that will give service providers like ourselves the opportunity to provide innovations off that base," O'Brien said.

Direct Edge is crafting plans for its next stage of growth as it defends its third-place spot in U.S. equities trade, while rivals look to use the company's own tools against it.

Stock order types that route trades through off-exchange liquidity pools before sending them out to the broader market have been key to Direct Edge's growth, and in recent months Nasdaq OMX and BATS Exchange have introduced similar practices.

The move has helped BATS narrow the gap with Direct Edge over the last month. For July, Direct Edge has seen its U.S. market share tick lower to 11.6% month-to-date, as BATS's share inched higher to 11.5%.

Backers of Direct Edge include Knight Capital Group (NITE), Goldman Sachs & Co. (GS), Citadel Group, JP Morgan Chase & Co. (JPM), Merrill Lynch & Co. (ML), Nomura Securities (NMR) and Sun Trading.

Deutsche Boerse (DB1.XE), through its International Securities Exchange subsidiary, holds a 31.5% stake in Direct Edge after Direct Edge acquired the equities market of the ISE in December 2008 as part of its plan to convert to an exchange.

O'Brien said that Direct Edge could go public one day, though he stressed that such a move is "very far away."

-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117; jacob.bunge@dowjones.com