ISE Strengthens Leadership Position in 2003; Plans to Increase Product Lines in 2004.

Business Editors

NEW YORK--(BUSINESS WIRE)--Jan. 7, 2004

The International Securities Exchange (ISE), which completed its third full year of operations in 2003, ended the trading year as the world's largest equity options exchange.

ISE secured its 2003 advancements by continuing to enhance its trading systems to provide members and customers with more flexibility in executing their orders. Many of the trading system enhancements were created and introduced in response to requests from ISE's customers and members.

"The US options industry benefited from strong growth in 2003 as options contracts grew in popularity among individual and institutional investors," said David Krell, ISE's President and Chief Executive Officer. "ISE's market share increased as a result of its ongoing efforts to introduce new trading technologies and to attract new firms to enter the market."

ISE's average daily trading volume increased 61% to 971,742 contracts, compared to 604,251 contracts in the year-ago period. In total, ISE traded 244,879,035 million options contracts in 2003, up 61% from 152,271,279 million contracts in the previous year.

ISE's market share in its listings was 32%, up 33% compared to the same year-ago figure. ISE's total market share, which includes index options, was 30%, up 10% compared to the same year-ago figure.

In another important measure of ISE's position within its industry, ISE executed more customer volume in ISE-listed options in 2003 than any other US exchange. The spreads available in ISE's listed options classes are tighter than, or equal to, away markets more than 93% of the time. Moreover, ISE's PMMs and CMMs are willing to provide an average of more than four times the liquidity than counterparts at competing exchanges.

"In 2003, ISE concentrated on strengthening its core technology and building the infrastructure to expand its product line into index options. We enter 2004 committed to provide investors and members with additional products and trading functionality. As always, ISE will continue to approach these improvements by consulting its customer base and aligning new functionality and products with customer demand," said Gary Katz, ISE's Chief Operating Officer.

In 2003:

-- ISE implemented a "one size fits all" trading rule in January

that ensures market makers and firms receive the same order

execution privileges long enjoyed by customers. In a "one size

market," the displayed size of ISE's Primary Market Makers

(PMMs) and Competitive Market Makers (CMMs) applies to

incoming orders from customers, broker/dealers, firms, away

market makers, and immediate or cancel orders entered by other

market makers. The Securities and Exchange Commission's

approval of this trading rule marked the first time in the

30-year history of the US options market that professional

traders have been able to enjoy the same order-execution

benefits as public customers.

-- ISE introduced ISEspreads, allowing members to automatically

execute multiple part trades, such as spreads, straddles,

strangles and butterflies, against the combination order book

and against bids and offers posted in ISE's regular order book

and also against incoming bids and offers. Volume in multiple

part trades on ISE has increased 56% since its introduction on

February 7, 2003.

-- ISE launched the ISE Sentiment Index (ISEE) which measures

opening customer transactions in call and put options,

providing investors with information on the customer buying

and selling activity within the world's largest equity options

exchange.

-- Many of the securities industry's largest brokerage firms sent

letters to the Securities and Exchange Commission (SEC) in

support of ISE's 2002 petition with the SEC asking the

regulatory agency to use its rule-making authority to amend

its rules to prohibit an exchange from being a party to

exclusive or preferential licensing arrangements with respect

to index options products and options overlaying other

instruments. ISE believes that prohibiting such license

arrangements will enhance competition in the market and will

result in significant benefits for the investing public.

-- ISE implemented the technological and regulatory foundation to

trade index options, which allowed ISE to expand its product

base. The Standard & Poor's SmallCap 600 Index, which was

ISE's first listed index product, has experienced a 99%

increase in average daily volume since it began trading on

October 3, 2003.

-- ISE introduced a low cost Virtual Private Network (VPN)

connectivity solution that allows broker/dealers to use ISE

trader workstations to route orders to ISE's market over the

Internet.

-- ISE implemented a $1.00 strike price pilot program covering

options classes on stocks priced between $3.00 and $20.00 to

offer investors greater flexibility in managing their

investments by more closely aligning options strike prices

with stock prices.

-- ISE increased the liquidity available in the US options

market.

The following firms joined ISE as PMMs in 2003:

-- Citadel Derivatives Group, a subsidiary of Citadel

Investors Group

-- Merrill Lynch Professional Clearing Corporation

The following firms joined ISE as CMMs in 2003:

-- Citadel Derivatives Group, a subsidiary of Citadel

Investors Group

-- Merrill Lynch Professional Clearing Corporation

-- Optiver US, LLC 

-- UBS Securities LLC

-- ISE's number of Electronic Access Members (EAM) increased to

123, compared to 94 in 2002

-- ISE traded its 250 millionth contract in February, its 300

millionth contract in May, and its 400 millionth contract in

October.

-- ISE listed 590 equity options classes at the end of 2003, up

from 519 in the previous year.

-- ISE's Board of Directors voted to add 30 Competitive Market

Makers (CMMs) memberships, bringing the total number of CMMs

from 130 to 160. The issuance is currently pending SEC

approval.

-- ISE elected Dr. Thomas R. Cardello, Managing Director of

Morgan Stanley and Sarah Miller, Director of the Center for

Securities, Trust and Investments at the American Banking

Association to its Board of Directors. The ISE Board consists

of 15 members, seven industry directors and eight non-industry

directors.

-- ISE completed its third annual customer service survey to

insure that ISE's operations are optimally calibrated with the

needs and desires of its members and customers.

-- ISE was named Derivatives Exchange of the Year by Risk

Magazine for the second time in three years.

Mr. Krell said that ISE remains committed to its founding principles of market integrity, transparency, and efficiency. He said ISE plans to move forward with a number of new products and system enhancements next year. "We believe that ISE is poised to benefit from the global trends that continue to impact the options market," Mr. Krell said.

ISE Background

The International Securities Exchange, the world's largest equity options exchange, was founded on the principle that technology fosters and infuses new efficiencies and operational innovations into securities trading. After developing an innovative market structure that integrated auction market principles into an advanced screen-based trading system, ISE launched the first fully electronic US options exchange in May 2000. ISE continually enhances its trading systems to provide investors and the trading community with the most efficient, least expensive order executions possible.

For more information about ISE, its products and its technology, visit www.iseoptions.com.