International Securities Exchange

International Securites Exchange

File:ISE-4COLOR-STCKD.gif
Company type	Exchange
Founded	May 26, 2000
Headquarters	New York
Key people	David Krell, President/CEO Gary Katz, COO
Products	Options, Stock, Alternative Markets, Market Data
Website	www.iseoptions.com

International Securities Exchange Holdings, Inc (NYSE: ISE), through its subsidiaries, operates a family of innovative securities markets.

Founded in 2000, the ISE began its inception in 1997 when then-chairman of E*Trade, William A. Porter and his colleague, Marty Averbuch, began planning an exchange that would address the concerns of potential and current options investors and establish a new standard in US financial markets. Seeking to revolutionize the securities industry, ISE began its business on the principle that technology and competition create better, more efficient markets for investors. ISE is the world’s largest equity options exchange to date.

Launched as the first fully-electronic US options exchange, ISE developed a unique market structure for advanced screen-based trading and now is among the leading options exchanges in the world, operating the largest U.S. equity options exchange. The scalability and efficiency of ISE's business model and the absence of a trading floor and intermediaries such as floor brokers enabled the exchange to charge lower execution fees. ISE's proposed fees prompted an industry-wide scramble to do the same. ISE's business model attracted many well-capitalized global financial institutions to join as members. These firms, that had previously viewed participation in the options market as costly and inefficient, have significantly increased the overall liquidity in the options market.

The exchange currently consists of an options exchange, a stock exchange and an alternative markets platform. ISE continually enhances its trading systems and develops new products to provide investors with the new marketplace and investment tools. ISE offers index options, including a portfolio of proprietary index products, and enhanced market data products for sophisticated investors. ISE FX Options™ launched in April 2007.

Having evolved from its initial status as an options-only exchange, ISE Stock Exchange launched in September 2006 with strategic partners. It includes an MidPoint Match™ platform which offers investors continuous price improvement. MidPoint Match™ was integrated with a fully-displayed Best Bid Offer (BBO) market in the fourth quarter of 2006.

ISE’s alternative markets business currently consists of an events market trading platform known as Longitude. Longitude’s patented and proprietary technology provides a parimutuel structure for derivatives auctions which results in greater trading and pricing flexibility for market participants.

Timeline

Pre-ISE

• 1980s and 1990s: While other financial markets were embracing electronic trading, the U.S. options markets still practiced open-outcry trading and each exchange had exclusive listings for options on blue-chip stocks. Customer choice was limited and brokerages were forced to maintain trading operations on the floor of each exchange.

• 1997: Bill Porter and Marty Averbuch began planning an exchange that was based on the principle that technology and fair market structure enable better quality trading for investors. They approached David Krell and Gary Katz to examine the feasibility of developing a new, electronic U.S. options exchange.

2000

• February 24, 2000: ISE becomes the first registered national securities exchange approved by the Securities and Exchange Commission since 1973.
• May 26, 2000: ISE launches its Options Exchange - the first transaction is a purchase of 20 SBC Communications October 45 calls.

2001

• May 29, 2001: ISE trades its 25 millionth contract.
• November 1, 2001: ISE becomes the 3rd largest U.S. equity options exchange after 18 months of trading when average daily volume for October 2001 reaches 380,299 contracts.

2002

• May 22, 2002: ISE achieves its goal of listing equity options representing 90% of average daily trading volume in the US options industry.
• October 29, 2002: ISE trades its 200 millionth contract.

2003

• February 20, 2003: ISE trades its 250 millionth contract.
• March 1, 2003: ISE becomes the largest US equity options exchange after average daily volume for February 2003 reaches 710,218 contracts.

2004

• January 2004: ISE is named Derivatives Exchange of the Year by Risk Magazine for the second time in three years.

2005

• March 9, 2005: ISE becomes the first securities exchange to sell its shares in an initial public offering.
• May 24, 2005: ISE trades its 1 billionth contract.
• December 8, 2005: ISE completes its secondary public offering.

2006

• January 20, 2006: ISE trades a record daily trading volume of 4,580,678 equity and index options contracts.
• March 24, 2006: ISE acquires the intellectual property and other related assets of Longitude and launches its alternative markets trading platform.
• May 16, 2006: ISE trades its 1.5 billionth contract.
• September 1, 2006: ISE adopts a holding company structure to provide a framework for growth.
• September 8, 2006: ISE launches the ISE Stock Exchange, in partnership with key strategic firms, with its first product, MidPoint Match™.
• December 8, 2006: ISE Stock Exchange rolls out its fully-displayed stock market and becomes the first fully-electronic exchange to provide integrated access to non-displayed and displayed liquidity pools.

2007

• February 27, 2007: ISE sets a new record daily trading volume of 5,531,875 equity and index options. contracts. Trading volume in the Nasdaq-100 Index Tracking Stock (QQQQ) also reaches a new high of 1,032,296 contracts.
• March 5, 2007: ISE announces partnership Toronto Stock Exchange to launch DEX, a new derivatives market in March 2009.
• March 9, 2007: ISE trades its 2 billionth options contract.
• April 17, 2007: ISE launches FX Options™, an options product based on rate movements in the global currency market.
• April 30, 2007: German exchange operator Deutsche Boerse announces it will buy fast growing U.S. options market International Securities Exchange (ISE.N) for $2.8 billion, creating the No. 1 transatlantic derivatives marketplace.

ISE OPTIONS EXCHANGE

As the world’s largest equity options exchange, ISE's members and customers benefit from the liquidity and quality of its markets. In the top 100 most actively traded equity options products, ISE’s average quoted size was more than the average quoted size of the other US options exchanges combined. ISE's options market is equal to or better than the NBBO over 95% of the time.

ISE's market structure integrates auction market principles into an advanced screen-based trading system. Orders from customers are the highest priority on the ISE. A customer order will not be automatically executed against the ISE BBO if another options exchange has posted a better price.

ISE currently has listings in over 1200 options and offers trading in equity, index, ETF and quarterly options.

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INDEX OPTIONS

ISE introduced index options in October 2003, marking the first time indexes were traded fully electronically and making trading more efficient than ever before. ISE extends the same efficiency and liquidity to the index marketplace that it has brought to the equity options marketplace. ISE's market offers transparency, firm tradable quotes and immediacy through electronic execution.

In 2004, ISE launched ISE Sector Indexes; innovative industry indexes that track the performance of publicly traded companies in various industries. ISE sector indexes provide you with an effective way to gain exposure to “pure-play” investments in targeted, high-growth sectors. ISE also provides investors with new ways to track the broader market with indexes that are designed to track the performance of the most highly capitalized, or most actively traded, public companies that are headquartered in the U.S. In 2007, ISE announced a partnership with First Trust to launch ETFs based on ISE proprietary indexes, further establishing ISE indexes as sector benchmarks. The Exchange also announced a partnership with U.S. Futures Exchange (USFE) to launch several cash-settled futures contracts based on the ISE family of proprietary indexes. In addition, ISE lists options on a variety of licensed index products.

ISE INDEXES

• ISE 100 (IXX)
• ISE 250 (IXZ)
• ISE 50 (IXK)
• ISE Bio-Pharmaceuticals (RND)
• ISE CHIndia (ICK)
• ISE Gold (HVY)
• ISE Homebuilders Index (RUF)
• ISE Integrated Oil and Gas (PMP)
• ISE Oil and Gas Services (OOG)
• ISE Revere Wal-Mart Supplier Index (WMX)
• ISE Semiconductors (BYT)
• ISE SINdex (SIN)
• ISE U.S. Regional Banks (JLO)
• ISE Water (HHO)

Procter & Gamble Helps Raise Awareness for World Water Day 2007

• ISE-CCM Alternative Energy (POW)
• ISE-CCM Homeland Security (HSX)
• ISE-CCM Nanotechnology (TNY)
• ISE-Revere Natural Gas (FUM)

FTSE INDEXES

• Mini FTSE 100 (UKX)
• Mini FTSE 250 (FTZ)

KBW INDEXES

• KBW Bank Index (BKX)

MORGAN STANLEY INDEXES

• Morgan Stanley Technology Index (MSH)

NASDAQ INDEXES

• Mini-Nasdaq-100 Index (MNX)
• Nasdaq-100 Index (NDX)

RUSSELL INDEXES

• Mini-Russell 2000 (RMN)
• Russell 1000 Index (RUI)
• Russell 2000 Index (RUT)

STANDARD & POOR'S INDEXES

• S&P Mid Cap 400 Index (MID)
• Standard & Poors Smallcap 600 Index (SML)

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FX OPTIONS

Launched in April 2007, ISE FX Options™ are the latest product innovation from ISE, providing investors with exposure to rate movements in the global foreign currency market. ISE FX Options™ are exchange-listed securities that can be easily accessed through most major brokerage accounts, just as investors would trade equity and index options today.

With ISE FX Options™, investors have instant access to a new investment strategy that allows them to express their views on the strength or weakness of the U.S. Dollar relative to foreign currencies. All ISE FX Options have U.S. Dollar-based underlying values, which are scaled as needed to create an underlying value similar to traditional equity or index options. For example, if the current USD/EUR rate is .7829, the underlying value for the ISE Euro FX Option would be 78.29. This format allows investors to easily adopt the trading strategies they currently use for equity and index options. Using this approach, investors will recognize that U.S. Dollar-strength is exhibited when a rate increases, and U.S. Dollar-weakness when a rate decreases. All products are cash-settled, eliminating the need for investors to hold the actual foreign currency.

Rates are now available for the four currency pairs that ISE will initially list: USD/EUR (Symbol: EUI), USD/GBP (Symbol: BPX), USD/JPY (Symbol: YUK), and USD/CAD (Symbol: CDD) through major market data vendors, including Bloomberg, ILX, Reuters, and Yahoo! Finance.

ISE STOCK EXCHANGE

Consistent with ISE’s origins as an all-electronic and high-speed options market, the ISE Stock Exchange is a completely electronic marketplace using technology to ensure very low-latency in the trading environment.

The ISE Stock Exchange offers two primary capabilities on one platform:

• • MidPoint Match™ is an exchange-based, non-displayed market. Members can use MidPoint Match™ to trade equities instantaneously at the exact midpoint price of the National Best Bid and Offer (NBBO).

• • Displayed market is a fully-electronic displayed market of the Best Bid and Offer trading the common stocks and ETFs listed on the NYSE, Nasdaq, and Amex.

The ISE Stock Exchange is the sole dual structure platform that integrates a dark pool, MidPoint Match™, with a fully displayed stock market. While the ISE Stock Exchange offers a multitude of order types, members can take advantage of the interaction between the two liquidity pools, providing further opportunities to maximize execution quality.

The ISE Stock Exchange reports quotes and trades directly to the tape. The letter “I” is used to denote all disseminated equity quotes. Trades printed for NYSE, Nasdaq, and the Amex stocks are represented with the letter “I”.

ALTERNATIVE MARKETS

ISE Alternative Markets provides enhanced risk management tools for investors through the creation of new, cutting-edge products in economic derivatives, corporate earnings options, property derivatives, catastrophe risk and asset volatility products all traded on a patented, parimutuel trading platform called Longitude.

MARKET DATA

• ISE SENTIMENT INDEX®

The ISE Sentiment Index® (ISEE) provides an indication of how investors view stock prices and only measures opening long customer transactions on ISE. Trades by market makers and firms are excluded as these tend to skew sentiment value. As a result, ISEE Select’s sentiment index calculation provides a more accurate reflection of true investor sentiment. The higher the reading in the ISEE, the bigger the discrepancy between optimistic activity (calls) and pessimistic activity (puts).

• ISEE SELECT™

ISEE Select™ is an intuitive browser application that allows subscribers to identify bullish and bearish investor sentiment for individual securities and industry sectors. This innovative offering allows subscribers to retrieve sentiment values for securities whose options are traded on ISE. ISEE Select™ has two sentiment applications, the Query Tool and the Scanning Tool, which can be accessed every twenty minutes during market hours.

ISEE Select™ uses the same calculation methodology as the ISEE Sentiment Index.

• ISE HISTORICAL OPTIONS TICK DATA (ISE HOT DATA)

ISE HOT Data is the full OPRA (Options Pricing Reporting Authority) daily tick file of all trades and BBO quotes for equities and index options but does not include FCOs. There are two historical data offerings available:

• • END OF DAY FILE through an annual subscription that can be downloaded from a FTP server.
  • AD-HOC REQUESTS that allow subscribers to request historical data for a specific date range.

ISE HOT Data was developed in response to requests for additional market data to help improve trading efficiency, including:

• • Back-testing of trading models
  • Post-trade analysis
  • Compliance
  • Time and sales queries

See Also

• Call option
• put option
• moneyness
• option time value
• put-call parity
• strike price
• binomial options model
• volatility smile
• option adjusted spread
• option screener
• option time value

External links

• ISE Options Exchange
• ISE Stock Exchange
• IVolatility