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Boy oh boy: The International Securities Exchange (ISE) isn't making any friends in the index industry. After its surprising June 2006 victory in Dow Jones vs. ISE, a ruling that effectively ended index-licensing agreements for options on exchange-traded funds (ETFs), the ISE is now pushing to end exclusive licensing agreements on regular index options. The ISE filed a complaint in the U.S. District Court for Southern New York asking for a declaratory judgment terminating the exclusive index options licensing agreements between the Chicago Board Options Exchange (CBOE), Dow Jones & Co. (Dow Jones) and McGraw-Hill (parent company of Standard and Poor's). Those agreements prevent other exchanges from trading options based on the Dow Jones Industrial Average and the S&P 500 Index. The CBOE has held these exclusive licenses for decades, and they are hugely profitable for the exchange; the S&P 500 option is the most popular index option in the world. The ISE asked the court to end those exclusive licenses in the broad-based interests of investors. The accused parties struck back at the ISE by filing their own lawsuit, asking that the ISE be banned from launching the contracts without a license. That filing was made in the index-developer-friendly environs of Illinois, home to some of the most powerful precedents in favor of the intellectual property rights of index developers. The CBOE criticized the ISE in an internal "information circular," arguing that it invested time and effort in building the index options market and noting: "It may be more cost-effective to pursue new products through litigation than through research and development, but we don't subscribe to the argument that these lawsuits are of benefit to investors. Product innovation benefits investors. Lawsuits add to the cost of product development and ultimately create disincentives to innovate." |
