The U.S. Court of Appeals has unanimously decided that the International Securities Exchange (ISE) did not violate the intellectual property and trademarks of Dow Jones & Company and Standard & Poor’s when the ISE listed options on Standard & Poor's Depositary Receipts (SPDRs) and Dow Diamonds exchange traded funds (ETFs). The decision will not allow the unlicensed listing of options on the underlying indexes.
The decision frees exchanges to list options on ETFs without a license from the creator of the funds, says a spokesman for the ISE. “This has always been about options on ETFs, which are considered equity options, which is the basis for the court’s decision.”
In an e-mail interview, a spokesperson for Dow Jones says, “Dow Jones Indexes is disappointed by the Second Circuit’s decision. But we note the Court stated its opinion addresses only the ‘narrow and highly specific question’ of whether creating and trading options on Diamonds misappropriates Dow Jones Indexes' intellectual property rights. The decision explicitly makes clear that it does not permit unlicensed trading of derivative instruments that are linked directly to the value of an index.”
A spokesperson for Standard & Poor’s says that the decision will have no effect on the index or on the business.
The ISE does not have a license from Dow Jones to trade options on the Dow Diamonds ETF. The ISE’s license to trade options on the SPDR ETFs expires in January of 2010. “The ISE honors its agreements,” the ISE spokesman says.