International Securities Exchange (ISE)

What Is the International Securities Exchange (ISE)?

The International Securities Exchange (ISE) is an electronic options exchange that was launched in 2000. The exchange provides investors with greater liquidity and the ability to execute transactions at a much faster rate than the open outcry trading floor that had historically been the basis for options trading. In 2008, the ISE became a wholly owned subsidiary of the communications company Direct Edge Holdings. In 2016, the ISE became a wholly owned subsidiary of Nasdaq.

Key Takeaways

  • The International Securities Exchange (ISE) is an electronic options exchange launched in 2000; the ISE has been a wholly owned subsidiary of Nasdaq since 2016.
  • The ISE helps add liquidity to the market and reduce price volatility by providing computerized trading for investors looking to buy and sell options contracts.
  • Before becoming a Nasdaq subsidiary, the ISE was owned by Deutsche Börse and then Direct Edge Holdings.
  • Nasdaq's ISE offers its clients options trading for more than 3,000 underlying equities, indexes, and exchange traded funds (ETFs).
  • Nasdaq membership is required to participate on the International Securities Exchange.

Understanding the International Securities Exchange (ISE)

The advent of the International Securities Exchange (ISE) was considered revolutionary. Computerized trading has proven to be extremely efficient and has added to the liquidity in the options markets. This added liquidity has helped to reduce pricing volatility. Prior to electronic trading, investors looking to purchase or sell options relied solely on floor brokers to execute their trades.

The ISE offers index and equity offerings—among them, proprietary index products and foreign currency exchange options. The ISE’s market data tools provide information on risk management, investor sentiment, and other important data.

Milestones of the International Securities Exchange (ISE)

The ISE was founded in 1997 and became the first electronic options exchange in the United States when the ISE began trading on May 26, 2000. In 2001, the ISE traded an average daily volume of 264,000 options contracts.

By 2004, the ISE's average daily trading volume grew to about 1.4 million options contracts, earning the exchange a 33.3% market share for U.S. equity options. In 2004, the ISE generated $125.4 million in total revenue and net income of $26.2 million. ISE sold shares in an initial public offering (IPO) in March 2005.

By 2007, the ISE was trading an average daily volume of approximately 3.1 million options contracts, making it the world's largest equity options exchange. In 2007, the U.S. options industry experienced an annual growth rate of 41.3%.

In 2007, the Deutsche Börse purchased the ISE. By September 2008, the ISE had set a new record for daily trading volume, selling more than 7.9 million options contracts per day. In 2008, ISE became a wholly owned subsidiary of Direct Edge Holdings. ISE was purchased by Nasdaq in 2016.

Purchase by Nasdaq

In March 2016, Nasdaq bought the ISE for $1.1 billion, purchasing it from Deutsche Börse of Germany. At the time, ISE exchanges represented over 15% of U.S. trading in stock and index options. The purchase of ISE allowed Nasdaq to take over ISE’s stake in the world’s biggest clearinghouse for equity derivatives, the Options Clearing Corporation, bringing Nasdaq’s holdings in the Options Clearing Corporation up to 40%.

365 million trades

The number of options markets trades Nasdaq processed in 2020, marking a 52% volume increase over 2019.

Special Considerations

Nasdaq's ISE offers their clients options trading for more than 3,000 underlying equities, indexes, and exchange traded funds (ETFs). Nasdaq membership is required to participate on the ISE exchange. Applicants must meet several requirements to be eligible for membership.

They must complete a Nasdaq broker-dealer membership form and be a registered U.S. broker-dealer. Applicants must be either a National Securities Clearing Corporation (NSCC) or Options Clearing Corporation (OCC) direct clearing member, or prove a clearing relationship with an approved exchange clearing firm. Depending on the type of membership being sought, the applicant may have other requirements they must meet.

Members pay fees to the exchange for placing orders and other services. Fees can vary depending on the type of market participant. The Nasdaq options pricing schedule lists order fees for market makers, non-Nasdaq ISE market makers, firm proprietary/broker-dealers, professional customers, and priority customers.

Article Sources

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  2. U.S. Securities and Exchange Commission. "Self-Regulatory Organizations; ISE Mercury, LLC; Notice of Filing of Proposed Rule Change Relating to a Corporate Transaction Involving Its Indirect Parent," Pages 4-5. Accessed Dec. 4, 2021.

  3. Nasdaq. "Nasdaq International Securities Exchange (ISE)." Accessed Dec. 4, 2021.

  4. Deutsche Börse Group. "International Securities Exchange Holdings, Inc," Page 2. Accessed Dec. 4, 2021.

  5. Deutsche Börse Group. "International Securities Exchange Holdings, Inc," Page 5. Accessed Dec. 4, 2021.

  6. Nasdaq. "International Securities Exchange Holdings Inc (ISE) IPO Overview." Accessed Dec. 4, 2021.

  7. Deutsche Börse Group. "Eurex and ISE Complete Merger." Accessed Dec. 4, 2021.

  8. Nasdaq. "Nasdaq Agrees to Acquire International Securities Exchange." Accessed Dec. 4, 2021.

  9. Deutsche Börse Group. "Financial Report 2016," Page 15. Accessed Dec. 4, 2021.

  10. Nasdaq. "Nasdaq Agrees to Acquire International Securities Exchange," Page 2. Accessed Dec. 4, 2021.

  11. Nasdaq. "Nasdaq International Securities Exchange." Accessed Dec. 4, 2021.

  12. Nasdaq. "U.S. Exchange Membership." Accessed Dec. 4, 2021.

  13. Nasdaq. "Options 7 Pricing Schedule." Accessed Dec. 4, 2021.

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