News

From The Exchanges
By Journal of Indexes Staff

Related ETFs: OIL / SPY / DON

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ISE ... The Indexer

A fter dramatically overhauling the way options contracts are traded, the ISE has set its sites on another corner of the lucrative options market: developing proprietary indexes and related options contracts. In June, ISE launched options on five proprietary sector indexes covering everything from homeland security to the semiconductor industry.

On the face of it, the strategy marks a curious turn for ISE, which has made its name pushing for open, competitive markets . Proprietary index options, by definition, trade on only one exchange. According to some competitors, however, ISE's "proprietary" indexes are anything but proprietary.

The index causing all the trouble is ISE's new gold index, HVY, which includes companies that own and/or operate gold mines. On June 7, the PHLX filed for a temporary restraining order to block the launch of HVY options. According to PHLX, HVY is just a copycat of PHLX's famous Gold and Silver Index, known by its ticker "XAU." A judge has yet to rule on the restraining order, so the ISE options are trading.

PHLX isn't the only company upset with the ISE for treading on supposed intellectual property rights. Just a few weeks before the gold index brouhaha broke out, a Federal District Court in New York granted Dow Jones Indexes a restraining order preventing ISE from listing and trading options on the Diamonds ETF, which tracks the Dow Jones Industrial Average. ISE tried to launch the options without a license from Dow Jones, claiming that ETFs were distinct from the indexes they follow and that, as publicly traded entities, ETFs did not require a license for options. A similar restraining order was granted to McGraw-Hill, the parent company of Standard and Poor's, when ISE tried to launch options on the SPDR ETF (SPY). The two companies later reached a licensing agreement for the product, but the lawsuit continues.

NYSE Seat Price Nears Record; Archipelago Eyes ETF Listings

A seat on the NYSE fetched a near record price on June 7, trading hands for $2.5 million. The figure stood more than 150 percent above the prices achieved just six months prior. Notwithstanding a few disgruntled seat-holders, the market clearly loves the direct ion the NYSE is moving in its merger with Archipelago .

It doesn't hurt matters that the NYSE's earnings are rising sharply. According to recent data released by Archipelago, the NYSE earned $53 million during the first five months of 2005, compared to $28 million from the year-ago period. Revenues lagged earnings growth , how ever, rising just five percent.

Archipelago share s - which trade as a proxy for the value of the NYSE-hit an all-time high in June, topping out at $41.75 a share. That's more than double the $17 price tag prior to the merger announcement in April.

The NYSE/Archipelago combo isn't the only exchange that's doing well. Publicly-traded share s of the Nasdaq Stock Exchange ( N DAQ) have almost doubled since the exchange announced plans in late April to buy Archipelago's chief rival, Instinet. And with options and futures volume continuing to rise, seat and share prices of exchanges across the country have been trading at or near their all-time highs.