ISE Retains Right To Trade Options Without License

by Leroy Baker, for LawAndTax-News.com, New York

21 June 2006

A United States appeals court has affirmed an earlier ruling which allows the New York-based International Securities Exchange, Inc. to trade options on exchange traded funds (ETFs) without a license.

The United States Court of Appeals for the Second Circuit unanimously affirmed the ruling of a lower court which dismissed the complaints of Dow Jones & Company, Inc. and Standard & Poor's, a division of the McGraw-Hill Companies, Inc., against ISE and The Options Clearing Corporation (OCC).

In 2005, ISE announced its intention to trade options on SPDRs(R) and DIAMONDS(R), widely-known exchange traded funds, without a license from the creators of those funds, S&P and Dow Jones, respectively.

The two companies brought suit against ISE and OCC in the US District Court for the Southern District of New York, alleging that ISE's unlicensed trading infringed their intellectual property rights.

The Court of Appeals unanimously affirmed the District Court's ruling, finding that ISE's creating, listing, trading, and clearing of options on the shares of exchange traded funds that track the performance of stock market indexes does not constitute misappropriation of the stock market index owners' intellectual property or unfair competition. The Court also affirmed that ISE's use of the SPDR(R) and DIAMONDS(R) trademarks in listing those options does not constitute trademark infringement or dilution.

The International Securities Exchange, the world's largest equity options exchange, was founded in 2000 with the intention of bringing options trading in the US into the technological age by using an innovative market structure that integrated auction market principles into an advanced screen-based trading system.

Recommended