International Securities Exchange

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ISE BACKGROUND

International Securities Exchange Holdings, Inc. 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 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. operates the largest U.S. equity options exchange while remaining among the leading options exchanges in the world. 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 lower fees. 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. Standing behind their motto of “Trade Smarter”, 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™ are slated to launch in 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.

1 ISE OPTIONS EXCHANGE
2 FX OPTIONS
3 ISE STOCK EXCHANGE
4 External links

[edit] 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.

[edit] FX OPTIONS

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. ISE FX Options will launch in 2007, subject to SEC approval.

With ISE FX Options, investors will 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.

[edit] 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”.

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: