The

Chicago Board Options Exchange

is stepping further into the electronic trading camp.

On Thursday, the options market said it signed a letter of intent with alternative trading system

Primex Trading

to incorporate Primex's electronic auction into its own open outcry and electronic execution system. (An open outcry system involves traders on the floor shouting orders to each other.)

Primex already signed an agreement to be a so-called facility of the

Nasdaq

stock market (meaning that the exchange operates and regulates the system) and is expected to begin trading Nasdaq stocks by the first quarter's end. The CBOE probably won't begin running the Primex system for at least a year, a Primex spokesman said.

Unlike the more well-known alternative trading systems that are electronic communications networks, or ECNs, such as

Reuters'

(RTRSY)

Instinet

and

Datek Online's Island

, Primex doesn't automatically match orders. Instead, it's an auction-based trading system that electronically mimics a traditional trading pit. It also combines retail and institutional orders by allowing institutions to place firm buy and sell commitments into the system in case such an order is placed. That, Primex says, increases liquidity, improves prices and allows for the best execution.

TST Recommends

The system is owned by

Bernard L. Madoff Securities

,

Merrill Lynch

(MER)

,

Morgan Stanley Dean Witter

(MWD)

,

Citigroup's

(C) - Get Report

Salomon Smith Barney

, and

Goldman Sachs

(GS) - Get Report

.