Case Study: ISE Stock Exchange

1. Case Study:ISE Stock Exchange WFE Market Structure Conference December 2, 2008

2. ISE Overview • Founded in 1997, ISE operates a family of innovative, fully electronic trading platforms – an options exchange and the ISE Stock Exchange • The first newly registered securities exchange since 1973 and the first electronic options exchange in the U.S., ISE launched options trading on May 26, 2000 • ISE was the first U.S. securities exchange to go public with an IPO in March 2005; ISE merged with Eurex in December 2007, becoming part of a leading global exchange organization, Deutsche Börse Group • As the world’s largest equity options exchange, ISE has more than 170 members and has traded an average daily volume of 4.2 million options contracts in 2008 YTD • Launched equities trading on September 8, 2006 and announced plan to merge ISE Stock Exchange with Direct Edge on August 22, 2008

3. ISE Stock Exchange Milestones • 9/8/06: Proprietary MidPoint Match™ platform starts trading • 12/8/06: Integrated displayed market starts trading • 3/5/07: Reg NMS implementation date • 8/9/07: Reach 50 million shares benchmark • 9/7/07: Exceed 100 million shares milestone • 8/22/08: Announce combination with Direct Edge • 10/29/08: Record volume of 286.3 million shares traded • 12/08: Anticipated closing of Direct Edge transaction

4. Unique Market Structure • ISE Stock Exchange integrates a dark pool – MidPoint Match – with a fully displayed market • MidPoint Match: • Executes orders at the midpoint of the National Best Bid and Offer (NBBO) • Continuous, fully automated and anonymous matching platform • Algorithmic friendly (accepts all orders of 100 shares or greater) • Displayed Market: • All-electronic, continuous displayed best bid/offer auction equity market • Utilizes many of ISE’s market structure principles and modalities: low cost, transparent, low latency • Fully Reg NMS compliant

5. Buy 1,000 XYZ $35.54 Buy 10,000 XYZ $35.54 Buy 1,000 XYZ $35.54 NBBO Bid $35.50 $35.54 Offer MidPoint Match™ Size: 7,000 Size: 5,000 Fully Displayed Market $35.49 $35.54 Offer Bid 5,000 shares of XYZ executed at best offer: $35.54 3,000 shares of XYZ matched at MidPoint: $35.52 Remaining Order: Buy 7,000 XYZ $35.54 Remaining Order: Buy 2,000 XYZ $35.54 10,000 shares of XYZ purchased Average Price: $35.534 ISE Smart Router Size: 1,000 Size: 1,000 Size: 2,000 Size: 5,000 NYSE $35.54 NSX $35.65 Nasdaq $35.55 CSX $35.54

6. Why Launch an Exchange-Based Dark Pool? • An exchange-based dark pool offers several benefits: • Price improvement • Minimizes market impact • No restrictions on trade size (no odd lots) • No pre-set timed crossing • Complete anonymity • Access to non-displayed liquidity

7. Why Integrate a Dark Pool with a Displayed Market? • Interaction between the dark pool and displayed market provides benefits for users of both: • MPM orders have greater potential to find a match since they are exposed to two liquidity pools • DM orders have the opportunity for price improvement • Price improvement for all displayed market taker orders that interacted with MidPoint Match is greater than $0.01 per share. • On average, approx. 30,000 trades per day receive price improvement because of the interaction of the DM and MPM.

8. Benefits of an Exchange-Based Dark Pool vs. ATS • Benefits of Exchange medallion: • Direct connection to National Market System • Tape revenues • Ability to designate market makers • More flexibility in order types • Benefits of an Exchange to its users: • Clearly defined and transparent rules with SRO integrity • Neutral gathering place with equal standing for all members • One fee schedule for all • Zero information leakage about orders, members, or clients • Minimizes reverse engineering of order flow or trading against it for a prop account

9. Questions? WFE Market Structure Conference December 2, 2008