Ability to Trade Options on Exchange-Traded Funds Without a License Affirmed

The U.S. Court of Appeals for the Second Circuit recently affirmed the ruling of a district court that an options exchange, by creating, listing and facilitating the trading of options on shares in an exchange-traded fund (ETF) designed to track a proprietary market index, does not misappropriate intellectual-property rights of the creator of the index. Dow Jones & Company, Inc. v. International Securities Exchange, Inc., Case Nos. 05-4812-cv, 05-4972-cv (June 16, 2006) (Leval, J.).

Dow Jones is the creator of the widely known Dow Jones Industrial Average (DIJA), a stock index that reflects an average of the stock market value of the shares of 30 leading U.S. companies. McGraw-Hill is the creator of the Standard and Poor's 500 Index (S&P 500), which reflects the average stock market value of shares of 500 leading U.S. companies. Dow Jones created the DIAMONDS® ETF to track performance of the DJIA, while McGraw-Hill created the SPDR® ETF to track the performance of the S&P 500.