The McGraw-Hill Companies, on behalf of its financial services division Standard & Poor's, filed a Complaint today in the Circuit Court of Cook County, Illinois against the International Securities Exchange ("ISE") to restrain ISE's threatened acts of listing, trading, profiting from, and clearing options on the S&P 500 Index without a license from Standard & Poor's. McGraw-Hill filed the Complaint jointly with Dow Jones & Company and Chicago Board Options Exchange.
McGraw-Hill took this action in response to ISE's threatened unauthorized use of the S&P 500 Index. Specifically, ISE has threatened to list, trade, and profit from financial products -- specifically, index options -- based directly upon the S&P 500 Index. The Options Clearing Corporation ("OCC") is also named as a defendant in the Complaint, as a result of the role that it plays in the creation and issuance of options on behalf of ISE. CBOE has an exclusive license from Standard & Poor's to trade options on the S&P 500.
"In a directly-controlling decision that has stood for almost a quarter century -- Board of Trade v. Dow Jones & Company, Inc ... -- the Illinois Supreme Court held precisely such attempted conduct to be illegal. ISE is fully cognizant of that precedent ... ," the Complaint states.
The Complaint continues, " ... ISE seeks to free-ride on the extraordinary investments of time, effort, and money that each Plaintiff has made over the years in the respective Indexes ... in order to take advantage of Plaintiffs' substantial investments and to misappropriate Plaintiffs' proprietary rights and license rights for ISE's own financial gain."
"If ISE's free-riding were permitted, it would substantially reduce both the incentive for index providers such as Dow Jones and McGraw-Hill to continue to develop and maintain proprietary financial indexes and the incentive for licensees such as CBOE to develop markets for new index-based products. If permitted, such free-riding would threaten the quality and variety of the vibrant market for financial indexes ... and the variety of index-based financial products made available to investors."
The Complaint goes on to state, "If ISE were permitted to offer an unlicensed market for trading options on the ... S&P 500 Index, and to cause OCC to issue, clear, and settle such options, through these acts ISE wrongfully would reap the benefits of the significant efforts, time, and money expended by Plaintiffs to create, develop, and maintain their respective proprietary and license rights."
"If ISE were allowed to commence its unlawful activity, Plaintiffs and other index providers and sponsors of index derivative products would be deterred from creating and maintaining such indexes and products, thus depriving the public of the benefits of such indexes and products."
