Encouraged by its 2006 court victory allowing it to list options on the SPDR and Diamond exchange traded funds (ETFs), The International Securities Exchange (ISE) filed a complaint in the U.S. District Court for the Southern District of New York in November seeking to end the exclusive listing of certain index options. ISE has asked the court to issue a declaratory judgment holding that ISE does not need a license to list index options on the Dow Jones Industrial Average (DJX) and the S&P 500 Index (SPX).
The DJX and the SPX trade exclusively on the Chicago Board Options Exchange (CBOE) pursuant to licensing agreements between CBOE and Dow Jones & Company, and The McGraw-Hill Companies Inc., the provider of the S&P 500 Index. In June 2006, a U.S. appeals court ruled that ISE did not need a license to list options on the SPDR and Diamonds ETFs.
“Options should be multiply listed. What we’ve seen is that when products become multiply listed, spreads tighten, liquidity increases and fees come down,” says a spokesperson for the ISE. He notes that since SPDR options became multiply listed on January 2005, it became the third most actively traded options product.
Of course the success of multiply listed options does not speak to the legal rights of an index holder. Plaintiff attorney Andrew L. Deutsch says the suit takes the position that ISE, “does not have a legal obligation to take a license.”
All parties are prepared to defend their products, Dow Jones stating in a release that it “has strong defenses to the ISE’s action and it has the right to require anyone seeking to list derivatives based on the company’s proprietary indexes to obtain a license.”