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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2007

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission
file number 001-32435



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International Securities Exchange Holdings, Inc.

(Exact name of registrant as specified in its charter)



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|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Delaware                                                      |  | 20-5219710                         
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)
|                                                              | 
|60 Broad Street, New York, New York                           |  | 10004                              
|(Address of principal executive offices)                      |  | (Zip Code)                         

(212) 943-2400

(Registrants telephone number, including area code)



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated
filer  x                    Accelerated filer ̈Non-accelerated filer ̈

Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). Yes ̈No  x

As of May 4, 2007 there were 38,884,440 shares of the registrants Class A common stock
outstanding (voting).



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##### Table of Contents

INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC.

FORM 10-Q QUARTERLY REPORT

For the Quarter
Ended March 31, 2007

Table of Contents



|                                                                                                                            |  |   
|--------------------------------------------------------------------------------------------------------------------------- |  | --
|Part I. FINANCIAL INFORMATION                                                                                               |  |   
|                                                                                                                            | 
|Item 1. Financial Statements                                                                                                |  |   
|                                                                                                                            | 
|Consolidated Statements of Income for the Three Months Ended March 31, 2007 and 2006                                        |  | 3 
|Consolidated Statements of Financial Condition as of March 31, 2007 and December 31, 2006                                   |  | 4 
|Consolidated Statements of Changes in Stockholders Equity as of March 31, 2007 and December 31, 2006 and December 31, 2005 |  | 5 
|Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006                                    |  | 6 
|Notes to Consolidated Financial Statements                                                                                  |  | 7 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations                               |  | 15
|                                                                                                                            | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                          |  | 25
|                                                                                                                            | 
|Item 4. Controls and Procedures                                                                                             |  | 25
|                                                                                                                            | 
|Part II. OTHER INFORMATION                                                                                                  |  | 26
|                                                                                                                            | 
|Item 1. Legal Proceedings                                                                                                   |  | 26
|                                                                                                                            | 
|Item 1A. Risk Factors                                                                                                       |  | 26
|                                                                                                                            | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                                         |  | 26
|                                                                                                                            | 
|Item 5. Other Information                                                                                                   |  | 26
|                                                                                                                            | 
|Item 6. Exhibits                                                                                                            |  | 27
|                                                                                                                            | 
|Signatures                                                                                                                  |  | 27



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INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)



|                                                    |  |                             |        |      |   |       
|--------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                                    |  | Three Months EndedMarch 31,
|                                                    |  | 2007                        |        | 2006
|                                                    |  | (unaudited)                
|Revenues:                                           |  |                             |        |      |   |       
|Transaction fees                                    |  | $                           | 44,478 |      | $ | 36,867
|Member fees and other                               |  |                             | 7,117  |      |   | 5,622 
|Market data                                         |  |                             | 4,809  |      |   | 5,055 
|                                                    |  |                             |        |      |   |       
|Total revenues                                      |  |                             | 56,404 |      |   | 47,544
|Cost of revenues:                                   |  |                             |        |      |   |       
|Activity remittance fees                            |  |                             | 4,079  |      |   | 4,345 
|License fees, liquidity rebates, and brokerage fees |  |                             | 1,829  |      |   | 1,625 
|                                                    |  |                             |        |      |   |       
|Total cost of revenues                              |  |                             | 5,908  |      |   | 5,970 
|Gross margin                                        |  |                             | 50,496 |      |   | 41,574
|Expenses:                                           |  |                             |        |      |   |       
|Compensation and benefits                           |  |                             | 15,071 |      |   | 11,368
|Technology and communications                       |  |                             | 4,563  |      |   | 3,518 
|Occupancy                                           |  |                             | 1,461  |      |   | 1,318 
|Professional fees                                   |  |                             | 2,080  |      |   | 1,628 
|Marketing and business development                  |  |                             | 784    |      |   | 622   
|Depreciation and amortization                       |  |                             | 1,866  |      |   | 1,517 
|Other                                               |  |                             | 1,417  |      |   | 1,033 
|                                                    |  |                             |        |      |   |       
|Total direct expenses                               |  |                             | 27,242 |      |   | 21,004
|Reorganization                                      |  |                             |       |      |   | 24    
|                                                    |  |                             |        |      |   |       
|Total expenses                                      |  |                             | 27,242 |      |   | 21,028
|Operating income                                    |  |                             | 23,254 |      |   | 20,546
|Interest and investment income                      |  |                             | 3,233  |      |   | 1,611 
|Minority interest                                   |  |                             | 3,040  |      |   |      
|                                                    |  |                             |        |      |   |       
|Income before provision for income taxes            |  |                             | 29,527 |      |   | 22,157
|Provision for income taxes                          |  |                             | 12,843 |      |   | 9,739 
|                                                    |  |                             |        |      |   |       
|Net income                                          |  | $                           | 16,684 |      | $ | 12,418
|                                                    |  |                             |        |      |   |       
|Earnings per share:                                 |  |                             |        |      |   |       
|Basic                                               |  | $                           | 0.44   |      | $ | 0.33  
|Diluted                                             |  | $                           | 0.42   |      | $ | 0.32  
|Weighted average number of shares outstanding:      |  |                             |        |      |   |       
|Basic                                               |  |                             | 38,137 |      |   | 37,102
|Diluted                                             |  |                             | 40,095 |      |   | 39,254

The accompanying notes are an integral part of these financial statements.



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##### Table of Contents

INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands)



|                                                                                                                                                            |  |               |         |   |                  |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                            |  | March 31,2007 |         |   | December 31,2006 |  
|                                                                                                                                                            |  | (unaudited)   |         |   |                  |  
|ASSETS                                                                                                                                                      |  |               |         |   |                  |   |         |  
|Current assets:                                                                                                                                             |  |               |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                   |  | $             | 190,244 |   |                  | $ | 200,015 |  
|Accounts receivable, net                                                                                                                                    |  |               | 41,342  |   |                  |   | 34,815  |  
|Income tax receivable                                                                                                                                       |  |               | 8,997   |   |                  |   | 9,644   |  
|Securities owned                                                                                                                                            |  |               | 67,906  |   |                  |   | 60,090  |  
|Other current assets                                                                                                                                        |  |               | 5,475   |   |                  |   | 2,415   |  
|                                                                                                                                                            |  |               |         |   |                  |   |         |  
|Total current assets                                                                                                                                        |  |               | 313,964 |   |                  |   | 306,979 |  
|Securities owned                                                                                                                                            |  |               | 31,616  |   |                  |   | 32,724  |  
|Fixed assets, net                                                                                                                                           |  |               | 30,443  |   |                  |   | 29,009  |  
|Deferred tax asset, net                                                                                                                                     |  |               | 20,288  |   |                  |   | 21,932  |  
|Other assets                                                                                                                                                |  |               | 5,643   |   |                  |   | 5,781   |  
|                                                                                                                                                            |  |               |         |   |                  |   |         |  
|Total assets                                                                                                                                                |  |               | 401,954 |   |                  |   | 396,425 |  
|                                                                                                                                                            |  |               |         |   |                  |   |         |  
|LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS EQUITY                                                                                                     |  |               |         |   |                  |   |         |  
|LIABILITIES                                                                                                                                                 |  |               |         |   |                  |   |         |  
|Current liabilities:                                                                                                                                        |  |               |         |   |                  |   |         |  
|Accounts payable and accrued expenses                                                                                                                       |  |               | 19,183  |   |                  |   | 19,430  |  
|Compensation and benefits payable                                                                                                                           |  |               | 4,055   |   |                  |   | 12,453  |  
|Deferred revenue                                                                                                                                            |  |               | 6,015   |   |                  |   | 5,129   |  
|Payment for order flow payable                                                                                                                              |  |               | 11,886  |   |                  |   | 10,262  |  
|                                                                                                                                                            |  |               |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                   |  |               | 41,139  |   |                  |   | 47,274  |  
|Deferred revenue                                                                                                                                            |  |               | 49,675  |   |                  |   | 50,954  |  
|Other liabilities                                                                                                                                           |  |               | 3,401   |   |                  |   | 3,609   |  
|                                                                                                                                                            |  |               |         |   |                  |   |         |  
|Total liabilities                                                                                                                                           |  |               | 94,215  |   |                  |   | 101,837 |  
|Commitments and contingencies (Note 5)                                                                                                                      |  |               |         |   |                  |   |         |  
|Minority interest                                                                                                                                           |  |               | 33,283  |   |                  |   | 36,323  |  
|STOCKHOLDERS EQUITY                                                                                                                                        |  |               |         |   |                  |   |         |  
|Common stock, $0.01 par value, 150,000 authorized, 38,221 and 37,988 shares issued and outstanding as of March 31, 2007 and
December 31, 2006, respectively |  |               | 382     |   |                  |   | 380     |  
|Additional paid-in capital                                                                                                                                  |  |               | 164,079 |   |                  |   | 162,653 |  
|Retained earnings                                                                                                                                           |  |               | 110,003 |   |                  |   | 95,260  |  
|Accumulated other comprehensive loss                                                                                                                        |  |               | (8      | ) |                  |   | (28     | )
|                                                                                                                                                            |  |               |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                  |  |               | 274,456 |   |                  |   | 258,265 |  
|                                                                                                                                                            |  |               |         |   |                  |   |         |  
|Total liabilities, minority interest and stockholders equity                                                                                               |  | $             | 401,954 |   |                  | $ | 396,425 |  

The accompanying notes are an integral part of these financial statements.



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INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY

(in thousands)



|                                                                                  |  |        |  |             |     |                          |   |         |                  |  |   |                                            |   |  |                          |     |   |  |   |         |  
|--------------------------------------------------------------------------------- |  | ------ |  | ----------- | --- | ------------------------ | - | ------- | ---------------- |  | - | ------------------------------------------ | - |  | ------------------------ | --- | - |  | - | ------- | -
|                                                                                  |  | Shares |  | CommonStock |     | AdditionalPaid-InCapital |   |         | RetainedEarnings |  |   | AccumulatedOtherComprehensiveIncome/(Loss) |   |  | TotalStockholdersEquity |    
|As of December 31, 2005                                                           |  | 37,025 |  | $           | 370 |                          | $ | 136,918 |                  |  | $ | 47,743                                     |   |  | $                        | (53 | ) |  | $ | 184,978 |  
|Net income                                                                        |  |       |  |             |    |                          |   |        |                  |  |   | 55,152                                     |   |  |                          |    |   |  |   | 55,152  |  
|Dividend                                                                          |  |       |  |             |    |                          |   |        |                  |  |   | (7,635                                     | ) |  |                          |    |   |  |   | (7,635  | )
|Stock-based compensation                                                          |  |       |  |             |    |                          |   | 8,056   |                  |  |   |                                           |   |  |                          |    |   |  |   | 8,056   |  
|Stock options exercised and restricted stock vested                               |  | 963    |  |             | 10  |                          |   | 1,474   |                  |  |   |                                           |   |  |                          |    |   |  |   | 1,484   |  
|Shares repurchased                                                                |  |       |  |             |    |                          |   | (3,002  | )                |  |   |                                           |   |  |                          |    |   |  |   | (3,002  | )
|Tax benefit from stock-based plans                                                |  |       |  |             |    |                          |   | 19,207  |                  |  |   |                                           |   |  |                          |    |   |  |   | 19,207  |  
|Change in net unrealized gain/(loss) on available for sale securities, net of tax |  |       |  |             |    |                          |   |        |                  |  |   |                                           |   |  |                          | 25  |   |  |   | 25      |  
|                                                                                  |  |        |  |             |     |                          |   |         |                  |  |   |                                            |   |  |                          |     |   |  |   |         |  
|As of December 31, 2006                                                           |  | 37,988 |  |             | 380 |                          |   | 162,653 |                  |  |   | 95,260                                     |   |  |                          | (28 | ) |  |   | 258,265 |  
|                                                                                  |  |        |  |             |     |                          |   |         |                  |  |   |                                            |   |  |                          |     |   |  |   |         |  
|Net income                                                                        |  |       |  |             |    |                          |   |        |                  |  |   | 16,684                                     |   |  |                          |    |   |  |   | 16,684  |  
|Dividend                                                                          |  |       |  |             |    |                          |   |        |                  |  |   | (1,941                                     | ) |  |                          |    |   |  |   | (1,941  | )
|Stock-based compensation                                                          |  |       |  |             |    |                          |   | 2,991   |                  |  |   |                                           |   |  |                          |    |   |  |   | 2,991   |  
|Stock options exercised and restricted stock vested                               |  | 233    |  |             | 2   |                          |   | 264     |                  |  |   |                                           |   |  |                          |    |   |  |   | 266     |  
|Shares repurchased                                                                |  |       |  |             |    |                          |   | (4,195  | )                |  |   |                                           |   |  |                          |    |   |  |   | (4,195  | )
|Tax benefit from stock-based plans                                                |  |       |  |             |    |                          |   | 2,366   |                  |  |   |                                           |   |  |                          |    |   |  |   | 2,366   |  
|Change in net unrealized gain/(loss) on available for sale securities, net of tax |  |       |  |             |    |                          |   |        |                  |  |   |                                           |   |  |                          | 20  |   |  |   | 20      |  
|                                                                                  |  |        |  |             |     |                          |   |         |                  |  |   |                                            |   |  |                          |     |   |  |   |         |  
|As of March 31, 2007 (Unaudited)                                                  |  | 38,221 |  | $           | 382 |                          | $ | 164,079 |                  |  | $ | 110,003                                    |   |  | $                        | (8  | ) |  | $ | 274,456 |  
|                                                                                  |  |        |  |             |     |                          |   |         |                  |  |   |                                            |   |  |                          |     |   |  |   |         |  

The accompanying notes are an integral part of these financial statements.



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INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                        |  |                             |         |   |      |   |         |  
|--------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                        |  | Three Months EndedMarch 31, |        
|                                                                                        |  | 2007                        |         |   | 2006 |  
|                                                                                        |  | (unaudited)                 |        
|Cash flows from operating activities:                                                   |  |                             |         |   |      |   |         |  
|Net income                                                                              |  | $                           | 16,684  |   |      | $ | 12,418  |  
|Adjustments to reconcile net income to cash provided by/(used in) operating activities: |  |                             |         |   |      |   |         |  
|Depreciation and amortization                                                           |  |                             | 1,866   |   |      |   | 1,517   |  
|Minority interest                                                                       |  |                             | (3,040  | ) |      |   | 2,882   |  
|Stock based compensation                                                                |  |                             | 2,991   |   |      |   | 2,024   |  
|Deferred taxes                                                                          |  |                             | 1,644   |   |      |   | 1,136   |  
|Unrealized gain on securities owned and available-for-sale securities, net              |  |                             | (32     | ) |      |   | (296    | )
|Excess tax benefits from share-based payment arrangements                               |  |                             | (2,366  | ) |      |   | (3,314  | )
|(Increase)/decrease in operating assets:                                                |  |                             |         |   |      |   |         |  
|Accounts receivable, net                                                                |  |                             | (6,527  | ) |      |   | (4,329  | )
|Income tax receivable                                                                   |  |                             | 3,013   |   |      |   | 370     |  
|Securities owned                                                                        |  |                             | 1,323   |   |      |   | 2,033   |  
|Other assets                                                                            |  |                             | (3,064  | ) |      |   | 578     |  
|Increase/(decrease) in operating liabilities:                                           |  |                             |         |   |      |   |         |  
|Accounts payable and accrued expenses                                                   |  |                             | (247    | ) |      |   | (1,462  | )
|Compensation and benefits payable                                                       |  |                             | (8,398  | ) |      |   | (4,998  | )
|Income tax payable                                                                      |  |                             |        |   |      |   | (372    | )
|Deferred revenue                                                                        |  |                             | (393    | ) |      |   | 677     |  
|Payment for order flow payable                                                          |  |                             | 1,624   |   |      |   | (2,189  | )
|Other liabilities                                                                       |  |                             | (208    | ) |      |   | (177    | )
|                                                                                        |  |                             |         |   |      |   |         |  
|Net cash provided by operating activities                                               |  |                             | 4,870   |   |      |   | 6,498   |  
|                                                                                        |  |                             |         |   |      |   |         |  
|Cash flows from investing activities:                                                   |  |                             |         |   |      |   |         |  
|Purchase of fixed assets                                                                |  |                             | (3,158  | ) |      |   | (852    | )
|Purchase of intangible assets                                                           |  |                             |        |   |      |   | (2,000  | )
|Purchase of available for sale securities                                               |  |                             | (7,979  | ) |      |   |        |  
|Maturities of available for sale securities                                             |  |                             |        |   |      |   | 4,973   |  
|                                                                                        |  |                             |         |   |      |   |         |  
|Net cash (used in)/provided by investing activities                                     |  |                             | (11,137 | ) |      |   | 2,121   |  
|                                                                                        |  |                             |         |   |      |   |         |  
|Cash flows from financing activities:                                                   |  |                             |         |   |      |   |         |  
|Dividend                                                                                |  |                             | (1,941  | ) |      |   | (1,894  | )
|Proceeds from options exercised                                                         |  |                             | 266     |   |      |   | 294     |  
|Shares repurchased                                                                      |  |                             | (4,195  | ) |      |   | (1,971  | )
|Excess tax benefits from share-based payment arrangements                               |  |                             | 2,366   |   |      |   | 3,314   |  
|                                                                                        |  |                             |         |   |      |   |         |  
|Net cash used in financing activities                                                   |  |                             | (3,504  | ) |      |   | (257    | )
|                                                                                        |  |                             |         |   |      |   |         |  
|Increases/(decrease) in cash and cash equivalents                                       |  |                             | (9,771  | ) |      |   | 8,362   |  
|Cash and cash equivalents, beginning of period                                          |  |                             | 200,015 |   |      |   | 170,927 |  
|                                                                                        |  |                             |         |   |      |   |         |  
|Cash and cash equivalents, end of period                                                |  | $                           | 190,244 |   |      | $ | 179,289 |  

The accompanying notes are an integral part of these financial statements.



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##### Table of Contents

INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

The International Securities Exchange Holdings, Inc. (ISE
Holdings), is a Delaware corporation and the parent holding company of the following subsidiaries (collectively, the Company):



| |  |  | International Securities Exchange, LLC (ISE)a wholly-owned, fully-electronic exchange for equity and index options and related services utilizing
a market structure which combines the efficiencies of electronic trading with auction market principles. ISE was founded in September 1997. In February 2000, it received regulatory approval to become a national securities exchange and in May 2000,
formally commenced trading. ISE is regulated by the U.S. Securities and Exchange Commission (SEC).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Longitude LLC (Longitude)a wholly-owned subsidiary created in April 2006 which licenses its patented Parimutuel Derivative Call Auction technology
to investment banks and other financial institutions active in the capital markets.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ISE Stock Exchange, LLC (ISE Stock Exchange)a majority-owned subsidiary created in April 2006 as an exchange facility of ISE for equity
securities. ISE Stock Exchange commenced trading operations in September 2006.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ETC Acquisition Corp. (ETC)a wholly-owned subsidiary, which, as of April 1, 2007, is used to lease CMM trading rights on the Companys
options exchange.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

The Company operates two reportable segments - an options exchange and a stock exchange. The options exchange segment
is comprised of the operations from ISE, Longitude and ETC. The stock exchange segment is comprised of the operations from ISE Stock Exchange.

2.
REORGANIZATION

In connection with its initial public offering, the Company initiated a plan to reorganize into a holding company
structure. The Company completed its reorganization on September 1, 2006. As part of the restructuring, the International Securities Exchange, Inc. (ISE Inc.) merged into ISE, then a newly formed entity and a wholly-owned subsidiary
of ISE Holdings. As a result of this merger, the shares of common stock of ISE Inc. were converted into shares of common stock of ISE Holdings and shares of ISE Inc. Class B memberships were converted into trading and voting rights granted under
ISE.

3. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These financial statements have been prepared pursuant to the rules and
regulations of the SEC and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the financial position, results of operations and cash flows for the periods
presented in conformity with U.S. generally accepted accounting principles, or GAAP.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of ISE, ETC, ISE Stock Exchange and Longitude. All inter-company transactions have
been eliminated in consolidation. In accordance with FASB Interpretation No. 46R, Consolidation of Variable Interest Entities (FIN 46), ISE Stock Exchange is considered a variable interest entity (VIE) and
effective December 31, 2006, the Company consolidated its results as it was deemed the primary beneficiary. The Companys consolidation of ISE Stock Exchange will currently not have any effect on the Companys net results of
operations until ISE Stock Exchange generates net profits. Revenues and expenses of the Company will increase to reflect 100% of ISE Stock Exchanges results; however, it will not have any impact on net income as the Company is not required to
absorb any losses of the VIE. All revenues and expenses will be offset dollar-for-dollar by minority interest.

Use of Estimates

The preparation of the Companys consolidated financial statements in conformity with GAAP necessarily requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses for the period presented. Actual results could differ from those estimates.

Revenue Recognition

Transaction fees are
earned based on contracts executed on the Companys exchange and are recorded as transactions occur on a trade date basis. Transaction fees are recorded net of discounts of $9,395 and $9,541 for the three months ended March 31, 2007 and
2006, respectively. The Company waives or discounts certain trading fees.

Market data revenues are predominantly earned from the sale of
the Companys buy and sell transaction information and quotes through the Options Price Reporting Authority (OPRA). The Company earns a portion of OPRAs net income based on its pro-rata share of industry trade (not contract)
volume. Revenue is recorded as transactions occur on a trade date basis.

Member fees are comprised of revenues earned for connectivity and
access to the Companys exchange; revenue from the sale of CMM trading rights; fees for use of the Companys communication network, equipment and trading software; and regulatory and administrative fees. Other fees represent fees for
services provided by Longitude. Connectivity, access fees and communications, equipment and trading software fees and Longitude revenues are charged and recognized on a monthly basis based upon a specific fixed fee for each service. Revenue from the
sale of CMM trading rights is deferred and recognized on a straight-line basis over 14 years. Administrative fees are charged and recognized as incurred. Regulatory fees are charged on an annual basis and recognized over a twelve-month period.



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Deferred Revenue

The Company has sold 50 CMM trading rights as of March 31, 2007. The CMM trading rights were each sold pursuant to a purchase agreement for $1.5 million each. Certain CMM trading rights were paid in full on the
purchase date, while others are payable in annual installments; however, the purchase agreement grants immediate CMM trading rights upon execution of the purchase agreement. The Company currently recognizes revenue from the sale over 14 years, the
estimated useful life, on a straight-line basis. The estimated useful life was determined based upon an analysis of certain factors driving the securities industry that could have an effect on the Companys operations in providing services to
its exchange members. Such factors included significant historical operating, regulatory and technology changes which have affected market participants and trading venues. Based upon the analysis, the Company estimated a life of 14 years; however,
this period may be subject to change in the future.

On a periodic basis, or if certain circumstances come to its attention, the Company
reviews the original factors or assumptions used in determining the estimated service period to ascertain the effect, if any, current events may have on those factors and assumptions. If the current facts warrant a change in the estimated service
period, the Company will adjust the remaining revenue to be recognized in accordance with the new estimated service life using the prospective method. The service period may increase or decrease from the current estimate of 14 years based upon the
facts and circumstances.

Cash Equivalents

The Company considers all highly liquid investments with a maturity of less than 90 days from the statement of financial condition date to be classified as cash equivalents.



|                                            |  |               |         |                  |   |        
|------------------------------------------- |  | ------------- | ------- | ---------------- | - | -------
|                                            |  | March 31,2007 |         | December 31,2006
|Company funds                               |  | $             | 150,160 |                  | $ | 161,624
|Reserved for ISE Stock Exchange, LLC        |  |               | 34,767  |                  |   | 37,767 
|Reserved for payment for order flow program |  |               | 5,317   |                  |   | 624    
|                                            |  |               |         |                  |   |        
|Total                                       |  | $             | 190,244 |                  | $ | 200,015

Securities Owned

The Company has, through a Rabbi Trust, investments in various mutual funds in connection with the Companys previous long-term deferred compensation plan. Investments are carried at market value with realized
and unrealized gains or losses reported in other revenue and a charge or credit in compensation and benefits expense to reflect the change in the fair value of the amounts owed to employees. The Company has since replaced this plan with a
stock-based plan (Note 9).

The Company also invests cash in excess of short-term operating needs in U.S. treasury securities and municipal
bonds with maturities ranging from three to 24 months which it classifies as available for sale. Unrealized gains and losses are included in accumulated other comprehensive income on the statement of changes in stockholders equity until
realized. On a periodic basis, the Company reviews its portfolio for impairment. If a decline in fair value is deemed to be other than temporary, the security is written down to its fair value through earnings. Securities owned consist of the
following:



|                                 |  |               |        |                  |   |       
|-------------------------------- |  | ------------- | ------ | ---------------- | - | ------
|                                 |  | March 31,2007 |        | December 31,2006
|U.S. Government debt obligations |  | $             | 29,035 |                  | $ | 28,998
|Municipal bonds                  |  |               | 67,906 |                  |   | 60,090
|Mutual funds                     |  |               | 2,581  |                  |   | 3,727 
|                                 |  |               |        |                  |   |       
|Total                            |  | $             | 99,522 |                  | $ | 92,815

Income Taxes

The Company files a consolidated tax return for federal, state and local income tax purposes. In addition, the Company records deferred tax assets and liabilities for differences between the financial statement and
income tax basis of assets and liabilities, using currently enacted tax rates. Deferred tax benefits and expenses are recognized for changes in deferred tax assets and liabilities.

Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes
 an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 requires that management determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related
appeals or litigation processes, based on the technical merits of the position. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Once it is determined that a
position meets this recognition threshold, the position is measured to determine the amount of benefit to be recognized in the financial statements. The adoption of the provisions of FIN 48 did not have a material impact on the Companys
consolidated financial position and results of operations.

Payment for Order Flow

The Company imposes fees upon market makers to fund payments to order flow providers under a program administered by the Company. These fees are
distributed to certain order flow providers as an economic inducement to route their customer orders to the Companys exchange. The market makers have full discretion regarding the payment. Pursuant to Emerging Issues Task Force Issue
No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, the



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Company reflects the assessments and payments on a net basis, with no impact on revenues or expenses. When fees are assessed, the Company records an asset
(Accounts Receivable) with a corresponding liability (Payment for Order Flow Payable).

Payment for order flow cash is reflected in cash
and cash equivalents on the Companys Consolidated Statements of Financial Condition. These funds are not legally restricted and can be used for general corporate purposes.

Stock-Based Compensation

Effective January 1, 2005, and in connection with its initial
public offering, the Company began to account for stock-based employee compensation in accordance with SFAS No. 123(R), Share-Based Payment, using the modified prospective adoption method. Under this method of adoption, compensation
expense is recognized over the relevant service period based on the fair value of stock options and restricted stock awards granted on or after January 1, 2005 and future years. In addition, compensation cost is recognized in 2005 for awards
granted prior to the adoption date for which the requisite service period has not been rendered. No unearned compensation is included in stockholders equity for such stock options and restricted stock awards granted. Rather, such stock options
and restricted stock units are included in stockholders equity under SFAS No. 123(R) when services required from employees in exchange for the awards are rendered and expensed.

Fixed Assets

Fixed assets consist of software
licenses, computer hardware, furniture and fixtures, equipment and leasehold improvements. Capitalized fixed assets are depreciated utilizing the straight-line method over the estimated useful lives as follows:



|                                  |  |             
|--------------------------------- |  | ------------
|Trading related software licenses |  | 5 to 7 years
|Other software licenses           |  | 3 to 5 years
|Hardware and equipment            |  | 3 to 5 years
|Furniture and fixtures            |  | 7 years     

Leasehold improvements are amortized on a straight-line basis over the lesser of the lease term or
its estimated useful life.

Software Costs

Costs for internal software are assessed to determine whether they should be capitalized or expensed in accordance with American Institute of Certified Public Accountants Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, and other related guidance. Software development costs incurred during the preliminary project stage are expensed as incurred, while costs incurred
during the application development stage are capitalized and amortization is computed using the straight-line method over the softwares estimated useful life, generally three to seven years, depending on the type of software. Amortization of
these capitalized costs begins only when the software becomes ready for its intended use. Capitalization of costs ceases when the post implementation/operation stage of the software development process is reached.

The Company capitalized $454 and $2,751 for software licenses and software developed for internal use during the three months ended March 31, 2007
and the year ended December 31, 2006, respectively.

Marketing and Promotional Fees

Advertising costs, including media advertising and production costs, are expensed when incurred.

Intellectual Property

All costs related to
patents on internally developed intellectual property are expensed when incurred.

Impairment of Long-Lived Assets

On a periodic basis, the Company performs a review for the impairment of long-lived assets when events or changes in circumstances indicate that the
estimated undiscounted future cash flows expected to be generated by the assets are less than their carrying amounts or when other events occur which may indicate that the carrying amount of an asset may not be recoverable.

Fair Value of Financial Instruments

SFAS
No. 107, Disclosure about Fair Value of Financial Instruments, requires the disclosure of the fair value of financial instruments, including assets and liabilities recognized on the Consolidated Statements of Financial Condition.
Management estimates that the aggregate net fair value of all financial instruments recognized on the Consolidated Statements of Financial Condition approximates their carrying value, since the financial instruments are short term in nature and bear
interest at current market rates.

Related Party Transactions

As a regulated securities exchange, the Company regularly transacts business with broker-dealers involved in the business of trading securities and those broker-dealers may be stockholders of the Company. Therefore,
the Company engages in transactions with certain stockholders in the ordinary course of business. As a national securities exchange, the Company is required to provide equal non-discriminatory access and fees to all its members. Therefore, the
Company is prohibited by SEC regulation to charge fees that are not on or vary from its approved pricing schedule. In addition, FAS No. 57 Related Party Disclosures requires disclosures of related party transaction with owners of
more than 10 percent of the voting interests in the Company. The Company did not transact business with any stockholders that beneficially owned more than 10% of its outstanding common stock as of March 31, 2007 and 2006.



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5. COMMITMENTS AND CONTINGENCIES

Litigation

From time to time, the Company is involved in various routine reviews, regulatory
audits and inspections by the SEC as well as legal proceedings arising in the ordinary course of business. While any litigation contains an element of uncertainty, it is the opinion of management, after consultation with counsel, that the outcomes
of any such proceedings or claims are unlikely to have a material adverse effect on the business, financial condition or operating results of the Company.

Contractual Obligations

The Company has entered into obligations under operating leases with initial non-cancelable
terms in excess of one year for office space and computer equipment. Expenses recorded under these agreements for three months ended March 31, 2006 and 2007 were $2,237, and $1,680, respectively. In addition, the Company has entered into
contractual agreements with certain index providers for the rights to list index products. The Company also has entered into contractual agreements for technology enhancements and support with OMX (US) Inc. and its affiliates (collectively
OMX). Expenses related to OMX were $2,248 and $2,138 for the three months ended March 31, 2007 and 2006, respectively. At March 31, 2007, future minimum payments for commitments are as follows:



|                                     |  |                 |       |     |   |       |  |       |     |  |   |       
|------------------------------------ |  | --------------- | ----- | --- | - | ----- |  | ----- | --- |  | - | ------
|                                     |  | OperatingLeases |       | OMX |   | Other |  | Total
|Nine Months Ending December 31, 2007 |  | $               | 5,679 |     | $ | 6,752 |  | $     | 375 |  | $ | 12,806
|Year ending December 31, 2008        |  |                 | 5,625 |     |   | 5,162 |  |       | 878 |  |   | 11,665
|Year ending December 31, 2009        |  |                 | 4,558 |     |   | 4,087 |  |       | 150 |  |   | 8,795 
|Year ending December 31, 2010        |  |                 | 2,763 |     |   | 4,087 |  |       |    |  |   | 6,850 
|Year ending December 31, 2011        |  |                 | 2,016 |     |   |      |  |       |    |  |   | 2,016 
|Thereafter                           |  |                 | 7,281 |     |   |      |  |       |    |  |   | 7,281 

Letter of Credit

In the normal course of business, the Company collateralizes certain leases through standby letters of credit. As of March 31, 2007, the Company provided letters of credit totaling $416 collateralized by
certificates of deposit at a financial institution which are included in other assets.

Line of Credit

As of March 31, 2007, the Company had access to a $10,000 uncommitted credit line from a commercial banking institution to be used to meet the
Companys normal short-term capital needs. There were no borrowings outstanding under this credit line as of any of those dates.

Guarantees

The Company applies the provisions of the FASB Interpretation No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, which provides accounting and disclosure requirements for certain guarantees. The Companys trading rules, which its exchange members are bound by,
limit the Companys liability for losses suffered while conducting business on the Companys exchange. The Companys exchange trading rules do not extend to the customers of its exchange members. However, contractually the Company
agrees to indemnify its exchange members for losses they suffer in very limited circumstances. The potential for the Company to be required to make payments related to such contractual indemnifications is deemed remote.

6. ACCOUNTS RECEIVABLE

Accounts receivable consists
of the following:



|                                |  |               |        |   |                  |   |        |  
|------------------------------- |  | ------------- | ------ | - | ---------------- | - | ------ | -
|                                |  | March 31,2007 |        |   | December 31,2006 |  
|Trading related fees            |  | $             | 32,286 |   |                  | $ | 23,257 |  
|Payment for order flow program  |  |               | 6,569  |   |                  |   | 9,638  |  
|CMM trading rights:             |  |               |        |   |                  |   |        |  
|Current                         |  |               | 600    |   |                  |   | 600    |  
|Unamortized discount            |  |               |       |   |                  |   | (13    | )
|Other                           |  |               | 1,906  |   |                  |   | 1,355  |  
|Allowance for doubtful accounts |  |               | (19    | ) |                  |   | (22    | )
|                                |  |               |        |   |                  |   |        |  
|Total                           |  | $             | 41,342 |   |                  | $ | 34,815 |  
|                                |  |               |        |   |                  |   |        |  



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7. DIVIDENDS

The following table sets forth the dividends we paid on our common stock during the year ended December 31, 2006 and the three months ended March 31, 2007:



|                   |  |                   |     
|------------------ |  | ----------------- | ----
|Record Date        |  | Dividendper Share
|March 23, 2006     |  | $                 | 0.05
|June 23, 2006      |  |                   | 0.05
|September 22, 2006 |  |                   | 0.05
|December 22, 2006  |  |                   | 0.05
|March 23, 2007     |  |                   | 0.05

8. MEMBER FEES AND OTHER

Member fees and other are comprised of the following:



|                                                            |  |                             |       |      |   |      
|----------------------------------------------------------- |  | --------------------------- | ----- | ---- | - | -----
|                                                            |  | Three Months EndedMarch 31,
|                                                            |  | 2007                        |       | 2006
|Connectivity, access fees and other fees                    |  | $                           | 4,233 |      | $ | 3,221
|Communication, equipment and software fees                  |  |                             | 931   |      |   | 685  
|Regulatory and administrative fees                          |  |                             | 661   |      |   | 405  
|Revenue from sale of CMM trading rights                     |  |                             | 1,279 |      |   | 1,189
|Imputed interest on installment sales of CMM trading rights |  |                             | 13    |      |   | 122  
|                                                            |  |                             |       |      |   |      
|Total                                                       |  | $                           | 7,117 |      | $ | 5,622
|                                                            |  |                             |       |      |   |      

9. STOCK-BASED PLANS

Stock Options

The Company has two stock option plansthe 2002 Stock Option Plan (the 2002 Plan),
which was adopted in 2002, and the Omnibus Stock Plan, which was adopted in 2005. Under the plans, options on the Companys common stock are issued for terms of 10 years and generally vest over three years. Options issued in connection with the
2002 Plan were issued with an exercise price significantly less than the estimated fair market value of the Company on the date of grant. Options issued under the Omnibus Stock Plan were issued with an exercise price equal to the estimated fair
market value of the Company on the date of grant. Options expire on dates ranging from May 2012 to September 2016. A summary of the stock option activity as of March 31, 2007 is as follows:



|                               |  |           |   |  |                                        |       |                                      |     |                    |           |                                                   |   |     
|------------------------------ |  | --------- | - |  | -------------------------------------- | ----- | ------------------------------------ | --- | ------------------ | --------- | ------------------------------------------------- | - | ----
|                               |  | Options   |   |  | WeightedAverageExercisePrice PerOption |       | WeightedAverageRemainingLife (years) |     | OptionsExercisable |           | WeightedAverageExercisePrice PerExercisableOption
|Outstanding, December 31, 2005 |  | 3,958,587 |   |  | $                                      | 3.88  |                                      | 6.9 |                    | 3,383,703 |                                                   | $ | 1.43
|Granted                        |  | 83,601    |   |  |                                        | 40.56 |                                      | 9.4 |                    |          |                                                   |   |    
|Forfeited                      |  |          |   |  |                                        |      |                                      |     |                    |           |                                                   |   |    
|Exercised                      |  | (803,464  | ) |  |                                        | 1.74  |                                      |     |                    |           |                                                   |   |     
|                               |  |           |   |  |                                        |       |                                      |     |                    |           |                                                   |   |     
|Outstanding, December 31, 2006 |  | 3,238,724 |   |  |                                        | 5.36  |                                      | 6.1 |                    | 2,661,972 |                                                   |   | 1.86
|Granted                        |  |          |   |  |                                        |      |                                      |     |                    |           |                                                   |   |    
|Forfeited                      |  |          |   |  |                                        |      |                                      |     |                    |           |                                                   |   |    
|Exercised                      |  | (70,872   | ) |  |                                        | 3.72  |                                      |     |                    |           |                                                   |   |     
|                               |  |           |   |  |                                        |       |                                      |     |                    |           |                                                   |   |     
|Outstanding, March 31, 2007    |  | 3,167,852 |   |  | $                                      | 5.40  |                                      | 5.8 |                    | 2,792,185 |                                                   | $ | 2.97
|                               |  |           |   |  |                                        |       |                                      |     |                    |           |                                                   |   |     



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The weighted average estimated fair value of the options granted during the year ended December 31,
2006 was $13.39 per option. The Company used a binomial model to value the options. The following assumptions were used:



|     |  |               |   |  |                    |   |  |               |   |  |                        
|---- |  | ------------- | - |  | ------------------ | - |  | ------------- | - |  | -----------------------
|     |  | DividendYield |   |  | ExpectedVolatility |   |  | Risk-FreeRate |   |  | ExpectedLife (in years)
|2006 |  | 0.6           | % |  | 44.9               | % |  | 4.41          | % |  | 3.5                    

Restricted Stock

The Company issued restricted stock awards (RSAs) to employees and certain directors under the Omnibus Stock Plan primarily in connection with year-end compensation and the Companys initial public
offering. All of the restricted stock outstanding as of March 31, 2007 requires future service as a condition to the delivery of the underlying shares of common stock along with certain other requirements outlined in the award agreements. The
RSAs vest over a period of two or five years. Information related to the RSAs is set forth below:



|                               |  |                        |  
|------------------------------ |  | ---------------------- | -
|Grant                          |  | Restricted StockAwards |  
|Outstanding, December 31, 2005 |  | 645,117                |  
|Granted                        |  | 173,786                |  
|Forfeited                      |  | (19,412                | )
|Vested                         |  | (239,747               | )
|                               |  |                        |  
|Outstanding, December 31, 2006 |  | 559,744                |  
|Granted                        |  | 297,879                |  
|Forfeited                      |  | (882                   | )
|Vested                         |  | (250,857               | )
|                               |  |                        |  
|Outstanding, March 31, 2007    |  | 605,884                |  
|                               |  |                        |  

Stock compensation expenses related to RSAs were $2,498 and $1,645 for the three months ended
March 31, 2007 and 2006, respectively.

Restricted Stock Units

The Company grants certain directors restricted stock units (RSUs) under the Omnibus Stock Plan at a total value of $10 per quarter per
director. Under the restriction, the stock units cannot be sold until one year after their service on the Board is terminated. Stock compensation expenses related to RSUs was $80 for the three months ended March 31, 2007 and 2006, respectively.



|                               |  |                      
|------------------------------ |  | ---------------------
|Grant                          |  | Restricted StockUnits
|Outstanding, December 31, 2005 |  |                     
|Granted                        |  | 7,432                
|Forfeited                      |  |                     
|Vested                         |  |                     
|                               |  |                      
|Outstanding, December 31, 2006 |  | 7,432                
|Granted                        |  | 1,640                
|Forfeited                      |  |                     
|Vested                         |  |                     
|                               |  |                      
|Outstanding, March 31, 2007    |  | 9,072                
|                               |  |                      



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10. EARNINGS PER SHARE

Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of common stock outstanding for the period. Diluted EPS reflects the potential reduction in earnings per
share that could occur if securities or contracts to issue common stock were exercised or converted into common stock. EPS under the basic and diluted computations are as follows:



|                                                                                                |  |                             |        |      |   |       
|----------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                                                                                |  | Three Months EndedMarch 31,
|                                                                                                |  | 2007                        |        | 2006
|Basic earnings per share:                                                                       |  |                             |        |      |   |       
|Net income                                                                                      |  | $                           | 16,684 |      | $ | 12,418
|Weighted average shares outstanding                                                             |  |                             | 38,137 |      |   | 37,102
|Basic earnings per share                                                                        |  | $                           | 0.44   |      | $ | 0.33  
|Diluted earnings per share:                                                                     |  |                             |        |      |   |       
|Net income                                                                                      |  | $                           | 16,684 |      | $ | 12,418
|Weighted average shares outstanding                                                             |  |                             | 38,137 |      |   | 37,102
|Dilutive effect of common stock equivalent shares related to stock options and restricted stock |  |                             | 1,958  |      |   | 2,152 
|                                                                                                |  |                             |        |      |   |       
|Weighted average shares outstanding-diluted                                                     |  |                             | 40,095 |      |   | 39,254
|                                                                                                |  |                             |        |      |   |       
|Diluted earnings per share                                                                      |  | $                           | 0.42   |      | $ | 0.32  

Diluted EPS computation does not include the anti-dilutive effect of 55 and 146 options for the
three months ended March 31, 2007 and 2006, respectively.

11. COMPREHENSIVE INCOME

Comprehensive income includes net income and changes in stockholders equity except those resulting from investments by, or distributions to,
stockholders. Comprehensive income is as follows:



|                                                             |  |                             |        |      |   |       
|------------------------------------------------------------ |  | --------------------------- | ------ | ---- | - | ------
|                                                             |  | Three Months EndedMarch 31,
|                                                             |  | 2007                        |        | 2006
|Net income                                                   |  | $                           | 16,684 |      | $ | 12,418
|Change in other comprehensive income:                        |  |                             |        |      |   |       
|Unrealized gain on available for sale securities, net of tax |  |                             | 20     |      |   | 17    
|                                                             |  |                             |        |      |   |       
|Total comprehensive income                                   |  | $                           | 16,704 |      | $ | 12,435
|                                                             |  |                             |        |      |   |       

12. GEOGRAPHIC AND CUSTOMER INFORMATION

All of the Companys revenues are derived in the U.S. and all of the Companys assets are located in the U.S. The Company considers significant
customers to be those who account for more than 10% of the Companys gross margin. The following is customer concentration information relating to significant customers of the options exchange segment:



|                                    |  |                             |   |  |      |  
|----------------------------------- |  | --------------------------- | - |  | ---- | -
|                                    |  | Three Months EndedMarch 31, |  
|                                    |  | 2007                        |   |  | 2006 |  
|Exchange members                    |  | 1                           |   |  | 2    |  
|Approximate percent of gross margin |  | 12                          | % |  | 24   | %



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13. BUSINESS SEGMENTS

In the first quarter of 2007 management began evaluating the Companys financial performance based on two operating segments - an options exchange and a stock exchange. Prior to this period, management believed
that the financial results of the stock exchange were immaterial to the Companys results. In order to provide a meaningful comparison, the Company has presented historical financial information using the current methodology. Management
evaluates the performance of these segments based on several factors, of which the primary financial measures are as follows:



|                                         |  |                                  |        |                                  |   |             |  |   |             |   |                 |   |               |  |   |             |  |   |      |   |  |   |       
|---------------------------------------- |  | -------------------------------- | ------ | -------------------------------- | - | ----------- |  | - | ----------- | - | --------------- | - | ------------- |  | - | ----------- |  | - | ---- | - |  | - | ------
|                                         |  | Three Months EndedMarch 31, 2007 |        | Three Months EndedMarch 31, 2006
|                                         |  | OptionsExchange                  |        | StockExchange                    |   | Elimination |  |   | ISEHoldings |   | OptionsExchange |   | StockExchange |  |   | ISEHoldings
|Total revenues                           |  | $                                | 55,938 |                                  | $ | 733         |  | $ | (267        | ) |                 | $ | 56,404        |  | $ | 47,544      |  | $ |     |   |  | $ | 47,544
|Gross margin                             |  |                                  | 50,385 |                                  |   | 378         |  |   | (267        | ) |                 |   | 50,496        |  |   | 41,574      |  |   |     |   |  |   | 41,574
|Total expenses                           |  |                                  | 23,627 |                                  |   | 3,882       |  |   | (267        | ) |                 |   | 27,242        |  |   | 20,128      |  |   | 900  |   |  |   | 21,028
|Minority interest                        |  |                                  |       |                                  |   | 3,040       |  |   |            |   |                 |   | 3,040         |  |   |            |  |   |     |   |  |   |      
|Income before provision for income taxes |  |                                  | 29,527 |                                  |   |            |  |   |            |   |                 |   | 29,527        |  |   | 23,057      |  |   | (900 | ) |  |   | 22,157
|Net income/(loss)                        |  | $                                | 16,684 |                                  | $ |            |  | $ |            |   |                 | $ | 16,684        |  | $ | 12,913      |  | $ | (495 | ) |  | $ | 12,418

Included in the consolidated statements of financial condition as of March 31, 2007 and December 31,
2006 are $34,767 and $37,767 of cash and cash equivalents; $34,986 and $37,891 of total assets; and $702 and $568 of total liabilities for ISE Stock Exchange, respectively.

14. SUBSEQUENT EVENTS

On April 30, 2007, the Company signed a definitive agreement with Eurex,
the worlds largest derivatives exchange jointly owned by Deutsche Börse AG and SWX Swiss Exchange, under which Eurex will acquire the Company for approximately $2.8 billion in cash, or $67.50 per share. The combination will be implemented
by way of a merger and is subject to approval by the Companys shareholders of a simple majority (50 percent plus one share), receipt of regulatory approval by the SEC and other customary closing conditions.

On May 8, 2007 the Company declared a quarterly dividend of $0.05 per share of Class A common stock to stockholders of record as of
June 22, 2007. The dividend is payable on June 29, 2007.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations.
|------- | --------------------------------------------------------------------------------------

You should read the following discussions together with the consolidated financial statements and related notes. Except for the historical information and discussions contained herein, statements contained in this
Form 10-Q may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate strictly to historical or current
facts. They use words such as anticipate, estimate, expect, project, intend, plan, believe, will, and other words and terms of similar meaning in
connection with any discussion of future operating or financial performance. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including market and general economic
conditions in the U.S. and elsewhere in the world, growth of our market share, our ability to keep up with rapid technological change, our business strategy, our offering of new products including index options and market data products,
consolidation in our exchange member base and within our industry and legislative and regulatory changes relating to our business and operations or activities, and other risks, uncertainties and factors discussed elsewhere in this Form 10-Q, in the
Companys other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference.

References in this discussion and analysis to we and our are to the International Securities Exchange Holdings, Inc. and its consolidated subsidiaries (collectively, the Company).

OVERVIEW

We operate a family of innovative securities markets. We
were founded on the principle that technology and competition create better, more efficient markets for investors. We continually enhance our trading system and develop new products to provide investors with the best marketplace and investment tools
to trade smarter. In the first quarter of 2007 our management began evaluating the Companys financial performance based on two operating segments - an options exchange and a stock exchange. In order to provide a meaningful comparison, we have
presented historical financial information using the current methodology.



| |  | Our options exchange business segment - We operate the largest U.S. equity options exchange and are among the leading options exchanges in the world.
We developed a unique market structure for advanced screen- based trading systems and in May 2000 launched the first fully-electronic U.S. options exchange. Our exchange provides a trading platform in listed equity and index options and related
services that are designed to improve the market for options and the speed and quality of trade execution for our exchange members.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Also included in this segment is our alternative markets platform which consists of an events market trading platform known as Longitude. Longitudes patented and proprietary technology provides a unique
parimutuel structure for derivatives auctions which results in greater trading and pricing flexibility for market participants.

Lastly,
this segment includes corporate overhead costs related to public company matters as well as corporate wide strategic initiatives.



| |  | Our stock exchange business segment - In 2006, we expanded our business into the trading of cash equities with the launch of ISE Stock Exchange in
partnership with key strategic investors. The ISE Stock Exchange is currently operates the only dual structure platform that integrates a non-displayed market, MidPoint Match (MPM), with a fully displayed stock market. Traders have
complete order protection and continuous price improvement.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pursuant to the terms of our agreement with the strategic
investors of the ISE Stock Exchange and in accordance with U.S. GAAP, we are the primary beneficiary of the ISE Stock Exchange and consolidate its financial results. We exercise a majority of the voting interest of the ISE Stock Exchange; however,
all losses are allocated solely to the minority owners. Consolidation of the ISE Stock Exchange does not currently have any effect on our net results of operations and will not until it generates net profits. Therefore, consolidation increases our
revenues and expenses to reflect 100% of the ISE Stock Exchanges results; however, these revenues and expenses are offset dollar-for-dollar by minority interest since we are not required to recognize any of its losses.

Summary operating results for our two segments and their effect on our consolidated results are as follows:



|                                         |  |                                  |        |                                  |   |              |  |   |             |   |                 |   |               |  |   |             |  |   |      |   |  |   |       
|---------------------------------------- |  | -------------------------------- | ------ | -------------------------------- | - | ------------ |  | - | ----------- | - | --------------- | - | ------------- |  | - | ----------- |  | - | ---- | - |  | - | ------
|                                         |  | Three Months EndedMarch 31, 2007 |        | Three Months EndedMarch 31, 2006
|                                         |  | OptionsExchange                  |        | StockExchange                    |   | Eliminations |  |   | ISEHoldings |   | OptionsExchange |   | StockExchange |  |   | ISEHoldings
|Total revenues                           |  | $                                | 55,938 |                                  | $ | 733          |  | $ | (267        | ) |                 | $ | 56,404        |  | $ | 47,544      |  | $ |     |   |  | $ | 47,544
|Gross margin                             |  |                                  | 50,385 |                                  |   | 378          |  |   | (267        | ) |                 |   | 50,496        |  |   | 41,574      |  |   |     |   |  |   | 41,574
|Total expenses                           |  |                                  | 23,627 |                                  |   | 3,882        |  |   | (267        | ) |                 |   | 27,242        |  |   | 20,128      |  |   | 900  |   |  |   | 21,028
|Minority interest                        |  |                                  |       |                                  |   | 3,040        |  |   |            |   |                 |   | 3,040         |  |   |            |  |   |     |   |  |   |      
|Income before provision for income taxes |  |                                  | 29,527 |                                  |   |             |  |   |            |   |                 |   | 29,527        |  |   | 23,057      |  |   | (900 | ) |  |   | 22,157
|Net income/(loss)                        |  | $                                | 16,684 |                                  | $ |             |  | $ |            |   |                 | $ | 16,684        |  | $ | 12,913      |  | $ | (495 | ) |  | $ | 12,418

Recent Events

On April 30, 2007, we signed a definitive agreement with Eurex, the worlds largest derivatives exchange jointly owned by Deutsche Börse AG and SWX Swiss Exchange, under which Eurex will acquire us for
approximately $2.8 billion in cash, or $67.50 per share. The transaction will be implemented by way of a merger and is subject to approval by the holders of a simple majority (50 percent plus one share) of our outstanding common stock at a special
shareholder meeting to be held as soon as practicable, receipt of regulatory approval by the SEC and other customary closing conditions. The combination will create the largest transatlantic derivatives marketplace with significant U.S. dollar and
Euro product coverage and with significant operations and revenues in both the U.S. and Europe, the two largest markets based on market capitalization. We will continue to operate as a separate entity under SEC regulation in our current governance
structure and under the ISE brand.

Business Environment

Our business is affected by macroeconomic factors impacting the U.S. economy as well as factors specific to the securities industry. The equities markets ended the first quarter essentially flat but fluctuated during
the period. Average daily volume of NYSE and Nasdaq-listed securities increased approximately 16% in the first quarter of 2007 compared to the comparable period in the prior year.



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The options industry continues to operate in an increasingly competitive and challenging environment
while at the same time experiencing robust growth and expansion. Industry average daily equity options volume increased 25% from 7.9 million contracts during the first quarter of 2006 to 9.0 million contracts during the first quarter of
2007, and industry average daily index option volume increased from 626,000 to 957,000 over the same period. Our average daily equity options volume increased from 2.4 million to 2.7 million over the same period; however, our market share
decreased to 30.2% from 32.7%. Our average daily index volume was 45,000 during the first quarter of 2007 compared to 28,000 during the same period last year.

Quoting in Penny Increments

On January 26, 2007, at the request of the SEC, all of the options exchanges
initiated a pilot program to quote 13 options in pennies. The pilot program is being conducted with trading increments of one-cent for options trading up to $3.00 and in five-cent increments for options trading above $3.00 for 12 of the pilot
options. All options on one ETF, the QQQQ, are being quoted in one-cent increments. The options industry participants and industry observers are keenly interested in the results of this pilot and in particular, the SECs actions after reviewing
the analysis and data from the options exchanges. Quoting in penny increments might benefit investors with small orders because they might receive more favorable prices and the industry may experience higher volumes. However, penny trading may also
have other perceived implications. These include decreased market makers profitability which could lead to pricing pressure on exchanges, decreased liquidity for large size orders, reduction or elimination of payment-for-order-flow, and
increased message traffic and capacity concerns. Recently, an official from the SEC commented that she would not support an end to the penny pilot at its conclusion in July 2007 and would further recommend expanding the pilot. While the views
expressed by the SEC official are her own and not necessarily that of the SEC, we believe comments by a senior SEC official provide insights to the overall views or directions the SEC may take in certain matters.

Based on our experience during the first several months of the pilot, we have observed an increase in quote traffic, a narrowing of spreads, a reduction
in displayed size, an increase in volume, and a decrease in payment for order-flow. These results were in line with our overall expectations. We are currently preparing our reports on the penny pilot for the SEC and are uncertain what decisions it
will make at this time.

Our Market Share and Dividend Trade Activity

Our average daily volume of equity options has grown significantly; however, we have experienced seasonal fluctuations on a quarterly basis. While our
trading volumes have generally been increasing, over the same period our market share has fluctuated. The following chart reflects our equity options ADV and market share since 2005 on a quarterly basis:



|                                      |  |       |   |  |       |   |  |       |   |  |       |   |  |       |   |  |       |   |  |       |   |  |       |   |  |       |  
|------------------------------------- |  | ----- | - |  | ----- | - |  | ----- | - |  | ----- | - |  | ----- | - |  | ----- | - |  | ----- | - |  | ----- | - |  | ----- | -
|                                      |  | Q1-05 |   |  | Q2-05 |   |  | Q3-05 |   |  | Q4-05 |   |  | Q1-06 |   |  | Q2-06 |   |  | Q3-06 |   |  | Q4-06 |   |  | Q1-07 |  
|Our Equity Options ADV (in thousands) |  | 1,727 |   |  | 1,598 |   |  | 1,694 |   |  | 2,035 |   |  | 2,356 |   |  | 2,372 |   |  | 2,194 |   |  | 2,381 |   |  | 2,728 |  
|Equity Options Market Share           |  | 33.1  | % |  | 32.5  | % |  | 32.6  | % |  | 31.9  | % |  | 32.7  | % |  | 31.8  | % |  | 32.2  | % |  | 30.1  | % |  | 30.2  | %

While we do monitor our market share, we do not believe it is the primary indicator of the health
of our business relative to absolute volume growth, which is what drives our revenues.

In particular, we believe our market share
statistics have been negatively impacted by the execution of large crossing transactions commonly referred to as dividend trades. The industry has experienced increased activity in this type of trading activity. Dividend trades are
options transactions in which very large quantities of in-the-money calls are purchased and exercised simultaneously in order to establish ownership in the stock just prior to the ex-dividend date. The exchanges that facilitate these
transactions have instituted fee caps which encourage market makers to enter extremely large size orders and engage in this activity. We believe that these transactions serve to distort volume and market share statistics for the industry as well as
disadvantage certain customers and therefore, do not encourage or engage in this activity.

Index Court Action

On November 2, 2006, we filed a complaint in the U.S. District Court for the Southern District of New York seeking to end the exclusive listing of
certain index options (the ISE NY Action). We asked the District Court to issue a declaratory judgment ordering that we do not need a license to list index options on the DJIA and S&P 500 Index. Currently, these two actively-traded
index options trade exclusively on CBOE pursuant to licensing agreements between CBOE, Dow Jones, and McGraw-Hill. On November 15, 2006, Dow Jones, McGraw-Hill, and CBOE filed a complaint against us and OCC in the Circuit Court of Cook County,
Illinois, asking the Circuit Court to issue a declaratory judgment ordering, among other things, that we may not list index options on the DJIA and S&P 500 Index without a license from Dow Jones and McGraw-Hill (the Defendants
Action). On December 22, 2006, Dow Jones and McGraw-Hill filed a motion to dismiss or stay the ISE NY Action pending a decision in the Defendants Action. On March 8, 2007, we filed a motion to dismiss or stay the
Defendants Action pending a decision in the ISE NY Action. Both motions are currently pending decision.

BUSINESS TRENDS AND DRIVERS

Options Exchange Segment

The financial results
from our options exchange segment account for the vast majority of our revenues and expenses. The following discusses the options exchange segments business trends and drivers.

Revenues

Transaction Fees

Transaction fees have accounted for, and continue to account for, a majority of our revenues and are primarily driven by trading volumes, pricing changes
and the proportion of non-broker-dealer customer volume in the trading mix. We have three general fee categories on our options exchangemarket maker, firm proprietary and non-broker-dealer customers.



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As a result of competitive pressures, we generally do not charge our options exchange members for
executing non-broker-dealer customer orders on our exchange with the exception of premium products and our Second Market. Generally, an increase in our non-broker-dealer customer orders reduces our average revenue per side. As a percent of our total
sides, non-broker-dealer customer sides have been increasing, reaching a high of 43.1% during the first quarter of 2006. However, it has decreased to 41.9% during the first quarter of 2007. We have also experienced an increase in firm proprietary
trading as a percent of our overall trading mix from 10.9% in the first quarter of 2006 to 13.9% in the first quarter of 2007. We believe this increase is an indicator of increased institutional use of our trading platform. Also included in
transaction fees are fees we charge exchange members for canceling orders. We have recently changed and raised this fee and may continue to do so in the future. The transaction fee for firm proprietary and non broker-dealer customer premium product
transactions is currently $0.18.

Also included in transaction fees are activity remittance fees we pay to the SEC as well as license fees
we pay for our exchange members to trade licensed products. GAAP requires us to record these fees on a gross basis.

We continually examine
our fee structure in light of competitive changes in the marketplace.

Member Fees and Other

Member fees and other are primarily driven by (a) the number of participants that become members of our exchange; (b) capacity requirements that
are dictated by the number of quotes or orders submitted to our trading system as well as the communication method chosen by the member; and (c) revenue from the sale of CMM trading rights. In 2002, we created 60 CMM trading rights to sell for
$1.5 million each. Each CMM trading right grants the holder the right to trade as a CMM on our options exchange. We currently recognize revenue from the sale of these CMM trading rights over an estimated useful life of 14 years on a straight line
basis. As of March 31, 2007, we have 10 remaining CMM trading rights to sell. We seek appropriate buyers for these CMM trading rights based on their ability to provide significant liquidity to our markets. The proceeds we receive from the
sales, less taxes and bonuses we pay on those sales, have been distributed to our stockholders. Unsold CMM trading rights do not generate revenue for us. Accordingly, based on requests by potential exchange members, we decided in 2006 to offer to
lease the unsold CMM trading rights for one year periods, for $150,000 per year. We anticipate leasing or selling all of the remaining unsold CMM trading rights and may effect such sales at anytime. However, we have no present agreements with any
entity to purchase or lease the remaining CMM trading rights and we cannot assure such sale or lease will take place. As of March 31, 2007, we sold 50 CMM trading rights. Other fees represent revenues from our subsidiary, Longitude.

Market Data Fees

Market data revenues are
primarily driven by the proportional number of trades executed on our exchange as well as the OPRA profits. We expect our market data revenues to continue to fluctuate based upon our market share of trades and OPRAs profitability. Our
market share of trades is partly driven by our trade size or our average contracts per trade. With the exception of the first quarter of 2006, we have generally been experiencing an increasing number of contracts per trade. We believe the increase
in number of contracts per trade is an indicator of increased trading by institutional investors, who generally trade in larger size than retail investors. To the extent we are successful in our efforts to increase trading by institutional
investors, we may experience a decrease in our market data revenues; however, this decrease would be more than offset by increased transaction fee revenues due to the increased trading. Also, to the extent the SEC expands the number of options
included in the penny pilot, we would expect OPRA to have increased costs for upgrading the capacity of its systems which may reduce our market data revenues. Additionally, beginning in the second quarter of 2006, we began to record revenues from
our own options market data offering. We do not expect the revenues generated from this offering to be material to our 2007 results.

Cost of Revenues

We record direct costs associated with our revenues as Cost of revenues on our consolidated statement of income. These
costs are comprised of:



| |  |  | Activity remittance fees we pay to the SEC pursuant to Section 31 of the Exchange Act. These fees are designed to recover costs to the government for the
supervision and regulation of securities markets and securities professionals. This expense is wholly offset by activity assessment fees we charge our exchange members which is included in transaction fees.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | License fees we pay for our exchange members to trade licensed products, primarily options on certain ETFs and indexes. This expense is offset by surcharges we
charge our exchange members for trading these products which is included in transaction fees. We expect these fees to decrease as we no longer pay such fees on certain ETFs, including in October 2006 license fees on the QQQQs.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Expenses

Compensation and Benefits

Employee compensation and
benefits expense is primarily driven by changes in our headcount and levels of incentive compensation. We may continue to increase our headcount to support our business initiatives which will lead to higher compensation and benefits expense. We also
may experience fluctuations in our incentive compensation as a portion of that expense is based on our profitability. We may also incur costs for a success bonus, in the form of cash and/or stock, payable to our executive officers and certain
directors if and when we sell our remaining 10 CMM trading rights.

Technology and Communications

Technology and communication expense is primarily driven by costs associated with our trading system and generally fluctuates based upon long-term trends
in our business activity. Certain elements of this expense, which we incur in anticipation of certain transaction volume levels, have both a fixed and variable nature. Once we incur these expenses initially, we may not incur them going forward on a
recurring, annual basis. As a result of the importance of our systems to the viability of our business, we continue to invest heavily in areas such as system capacity and reliability, increased functionality and performance and security and expect
the costs to increase in 2007. We also must modify our systems from time to time to comply with various regulatory requirements and competitive responses. The expenses we incur for these modifications may vary substantially from period to period. We
anticipate technology and communication expense to fluctuate with increases in volumes and trading system enhancements as well as technology changes in the industry. In addition, if the SEC were to decide to extend its penny quoting pilot to a
significantly greater number of options, we will incur additional costs to upgrade our systems.

Occupancy

Occupancy expense is primarily driven by our facility needs due to headcount or system needs as well as back-up facilities. We anticipate higher occupancy
costs in the future to support our growth, computer operations and disaster recovery needs.



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##### Table of Contents

Professional Fees

Professional fees are generally discretionary in nature, however there are non-discretionary components, such as accounting, audit and regulatory fees. As a SRO, we are required to regulate our exchange members and as
such, we employ the services of the NASD to perform certain of these functions on our behalf. Certain expenses, such as those related to new business initiatives or litigation may fluctuate from year to year. As a result of our pending merger with
Eurex, we expect to incur additional legal and advisory fees prior to closing the transaction.

Marketing and Business Development

Marketing and business development expense is generally discretionary in nature and is primarily driven by our public relations and product promotion
campaigns.

Depreciation and Amortization

Depreciation and amortization expense is primarily driven by purchases of software licenses, leasehold improvements and intangible assets we purchase and capitalize. We expect to incur additional software amortization expense related to
enhancements to our trading system in order to remain competitive. In addition, our leasehold improvements amortization may increase as we review our office space requirements, computer operations and disaster recovery needs.

Other Expenses

Other expenses include Board of
Director expenses, travel and entertainment related costs, general office expenses and liability insurance premiums. We expect other expenses to increase to support our overall growth.

Interest and Investment Income

Interest and investment income is primarily driven by our available
cash balances.

Provision for Income Taxes

Provision for income taxes is based on the application of prevailing federal, state and local tax rates. The difference between our effective tax rate and the statutory tax rate may vary from period to period, but primarily results from
state and local taxes and the effect of certain non-deductible expenses. We expect our effective tax rate to range from approximately 43% to 44% in 2007.

Stock Exchange Segment

Our stock exchange segment is still in the early stages of its development. The revenues in this
segment will not be material until such time as we can attract significant amounts of order flow. There are many ways to attract order flow, including pricing, system performance and functionality. Our profitability will be affected by how we
position this business to be competitive in these areas.

Seasonality

In the securities trading industry, quarterly revenue fluctuations are common and are due primarily to variations in trading volumes. We believe we experience increased levels of trading activity in the first and
fourth quarters, and decreased levels of trading activity in the second and third quarters. As a result of this and other factors described elsewhere herein, period-to-period comparisons of our revenues and operating results are not necessarily
meaningful, and the results of any quarter are not necessarily indicative of results of any future period.

Fixed and Variable Expenses

Our expense structure is predominantly fixed. However, there are some variable components that fluctuate with volumes. We may incur certain costs in
anticipation of certain transaction volume levels and make significant expenditures related to technological innovations over long periods of time, so that our operating margins and profitability could be adversely affected. In addition, a component
of our incentive compensation is dependent upon our operating results. If demand for our services should decline suddenly and we are unable to adjust our fixed cost base on a timely basis, it could have a material adverse effect on our operating
results and financial condition.



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##### Table of Contents

NON-GAAP FINANCIAL MEASURES

In an effort to provide additional information regarding our results as determined by GAAP, we also disclose certain non-GAAP information which we believe provides useful and meaningful information. Our management
reviews this non-GAAP financial measurement when evaluating our financial performance and results of operations; therefore, we believe it is useful to provide information with respect to these non-GAAP measurements so as to share this perspective of
management. Non-GAAP measurements do not have any standardized meaning and are therefore unlikely to be comparable to similar measures presented by other companies. These non-GAAP financial measures should be considered in the context with our GAAP
results.

We have disclosed financial measures using our net transaction fees which we define as our transaction fees less activity
remittance fees and ETF and index license fees. Under GAAP, activity remittance fees and ETF and index license fees are required to be recorded on a gross basis. Since activity remittance fee and ETF and index license fees are wholly offset by
corresponding amounts in transaction fees, management believes presenting net transaction fees provides a clearer measure of our transaction related performance.

The following table reflects the calculation of our net transaction fees for our options exchange:



|                                     |  |                                         |         |   |      |   |         |  
|------------------------------------ |  | --------------------------------------- | ------- | - | ---- | - | ------- | -
|                                     |  | Three Months EndedMarch 31,             |        
|                                     |  | 2007                                    |         |   | 2006 |  
|                                     |  | (in thousands, except per side amounts) |        
|Transaction fees                     |  | $                                       | 44,478  |   |      | $ | 36,867  |  
|Less cost of revenues:               |  |                                         |         |   |      |   |         |  
|Activity remittance fees             |  |                                         | 4,079   |   |      |   | 4,345   |  
|ETF and index license fees           |  |                                         | 1,829   |   |      |   | 1,625   |  
|                                     |  |                                         |         |   |      |   |         |  
|Total cost of revenues               |  |                                         | 5,908   |   |      |   | 5,970   |  
|                                     |  |                                         |         |   |      |   |         |  
|Net transaction fees                 |  | $                                       | 38,570  |   |      | $ | 30,897  |  
|Total sides                          |  |                                         | 338,389 |   |      |   | 295,631 |  
|Average transaction fee per side     |  | $                                       | 0.130   |   |      | $ | 0.125   |  
|Average cost of revenues per side    |  |                                         | (0.016  | ) |      |   | (0.020  | )
|                                     |  |                                         |         |   |      |   |         |  
|Average net transaction fee per side |  | $                                       | 0.113   |   |      | $ | 0.105   |  

CRITICAL ACCOUNTING POLICIES

Our accounting policy related to our revenue recognition from the sale of CMM trading rights on our options exchange is our most critical accounting policy that requires management to make estimates and judgments that
could affect our results.

As of March 31, 2007, we have sold 50 trading rights. The trading rights were each sold pursuant to a
purchase agreement for $1.5 million each. Certain trading rights were paid in full on the purchase date, while others are payable in annual installments; however, the purchase agreement grants immediate membership upon execution of the purchase
agreement.

The trading rights are transferable and have no contractual term. We have an implied performance obligation to maintain our
marketplace over the life of the membership, and therefore recognize the revenue from the sale of the trading rights over the estimated life of the trading right, as the implied performance obligation is fulfilled. We have estimated the life of the
trading right at 14 years, and recognize revenue over this period on a straight-line basis.

In order to determine the estimated service
life of the trading right, we identified three broad factors affecting the securities industry that have a significant impact on our operations, and therefore, the estimated service life of the trading rights  the securities industrys
challenging operating environment, regulatory changes and technology innovations. We identified specific historical events in the options industry and the broader securities industry for each of these factors, assigned an appropriate time horizon
for each event, and calculated an average time horizon for each factor. Based on this analysis, we used the average across all factors, 14 years, as an estimate for the service life of the trading rights.

The occurrence of each historical event considered in the analysis has necessitated significant changes in the business models of the securities
exchanges and market participants. Each of the factors identified have had a significant impact on the options industry or broader securities industry, and will have a significant impact on our trading rights.

On a periodic basis, or if certain circumstances come to our attention, we review the original factors or assumptions used in determining the estimated
service period to ascertain the effect, if any, current events may have on those factors and assumptions. If the current facts warrant a change in the estimated service period, we will adjust the remaining revenue to be recognized in accordance with
the new estimated service life using the prospective method. The service period may increase or decrease from our current estimate of 14 years based upon the facts and circumstances, and therefore, these revenues may fluctuate in the future.



We recognized revenue of $1.3 million and $1.2 million during
the three months ended March 31, 2007 and 2006, respectively, from the sale of CMM trading rights.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

None



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##### Table of Contents

KEY STATISTICAL INFORMATION

In evaluating the performance of our options exchange business, management closely monitors these key statistics:



|                                                                   |  |                             |         |   |      |   |         |  
|------------------------------------------------------------------ |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                   |  | Three Months EndedMarch 31, |        
|                                                                   |  | 2007                        |         |   | 2006 |  
|Trading Days                                                       |  |                             | 61      |   |      |   | 62      |  
|                                                                   |  |                             |         |   |      |   |         |  
|Average daily trading volume (1) (2)                               |  |                             |         |   |      |   |         |  
|Equity and Index Options                                           |  |                             |         |   |      |   |         |  
|Total U.S. industry equity and index options traded (in thousands) |  |                             | 9,990   |   |      |   | 7,828   |  
|Our equity and index options traded (in thousands)                 |  |                             | 2,773   |   |      |   | 2,384   |  
|Our market share of equity and index options traded                |  |                             | 27.8    | % |      |   | 30.5    | %
|Equity Options                                                     |  |                             |         |   |      |   |         |  
|Total U.S. industry equity options traded (in thousands)           |  |                             | 9,033   |   |      |   | 7,202   |  
|Our equity options traded (in thousands)                           |  |                             | 2,728   |   |      |   | 2,356   |  
|Our market share of equity options traded                          |  |                             | 30.2    | % |      |   | 32.7    | %
|Index Options                                                      |  |                             |         |   |      |   |         |  
|Total U.S. industry index options traded (in thousands)            |  |                             | 957     |   |      |   | 626     |  
|Our index options traded (in thousands)                            |  |                             | 45      |   |      |   | 28      |  
|Our market share of index options traded                           |  |                             | 4.7     | % |      |   | 4.5     | %
|Our member total trading volume (sides, in thousands): (3)         |  |                             |         |   |      |   |         |  
|Account type:                                                      |  |                             |         |   |      |   |         |  
|Customer                                                           |  |                             | 141,620 |   |      |   | 127,302 |  
|Firm proprietary                                                   |  |                             | 47,089  |   |      |   | 32,232  |  
|Market maker                                                       |  |                             | 149,680 |   |      |   | 136,097 |  
|                                                                   |  |                             |         |   |      |   |         |  
|Total Sides                                                        |  |                             | 338,389 |   |      |   | 295,631 |  
|Our market share of total industry trading: (4)                    |  |                             |         |   |      |   |         |  
|Customer                                                           |  |                             | 29.4    | % |      |   | 32.1    | %
|Firm proprietary                                                   |  |                             | 23.6    | % |      |   | 24.9    | %
|Market maker                                                       |  |                             | 27.9    | % |      |   | 30.6    | %
|Revenue:                                                           |  |                             |         |   |      |   |         |  
|Average transaction fee per side (5)                               |  | $                           | 0.130   |   |      | $ | 0.125   |  
|Average cost of transaction fee per side (6)                       |  | $                           | (0.016  | ) |      | $ | (0.020  | )
|                                                                   |  |                             |         |   |      |   |         |  
|Average net transaction fee per side (6)                           |  | $                           | 0.113   |   |      | $ | 0.105   |  
|Average transaction fee per revenue side (7)                       |  | $                           | 0.174   |   |      | $ | 0.176   |  
|Our trades:(8)                                                     |  |                             |         |   |      |   |         |  
|Average contracts per trade                                        |  |                             | 18.5    |   |      |   | 16.2    |  
|Average trades per day (in thousands)                              |  |                             | 150.1   |   |      |   | 147.2   |  
|Total trades (in thousands)                                        |  |                             | 9,156   |   |      |   | 9,126   |  
|Our market share of industry trade volume                          |  |                             | 31.7    | % |      |   | 33.8    | %
|Our listed issues: (9)                                             |  |                             |         |   |      |   |         |  
|Average number of issues traded during the period                  |  |                             | 1,643   |   |      |   | 854     |  
|Our Members (average number trading during period)                 |  |                             |         |   |      |   |         |  
|PMMs                                                               |  |                             | 10      |   |      |   | 10      |  
|CMMs                                                               |  |                             | 147     |   |      |   | 142     |  
|EAMs                                                               |  |                             | 110     |   |      |   | 102     |  
|                                                                   |  |                             |         |   |      |   |         |  
|Total                                                              |  |                             | 267     |   |      |   | 254     |  
|Employees (period average)                                         |  |                             |         |   |      |   |         |  
|Full-time equivalent (10)                                          |  |                             | 182     |   |      |   | 189     |  



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---

##### Table of Contents

---

|(1) | Represents single counted contract volume. For example, a transaction of 500 contracts on our exchange is counted as a single 500 contract transaction for purposes of calculating
our volumes, even though we may receive transaction fees from parties on both sides of the transaction, one side of a transaction, or in some cases, neither side of a transaction.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Our market share is calculated based on the number of contracts executed on our exchange as a percentage of total industry contract volume.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Represents each side of a buy or sell transaction. For example, a transaction of 500 contracts on our exchange is counted as two sides of 500 contracts, representing a buy and a
sell transaction. We generally do not charge our members for executing non-broker-dealer customer orders on our exchange except for options on our premium products as well as options for listings in our Second Market.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Represents our market share of total U.S. industry equity and index trading for members trading on our exchange based on contract trading volume.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Average transaction fee per side is calculated by dividing our transaction fees by the total number of sides executed on our exchange. We generally do not charge our members for
executing non-broker-dealer customer orders on our exchange except for options on our premium products as well as options for listings in our Second Market. Comparing our average transaction fee per side to our average transaction fee per revenue
side reflects the negative effect of our fee waivers or reductions on our revenues, on a per side basis.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Average cost of transaction fee per side is calculated by subtracting cost of revenues from transaction fees, which we refer to as net transaction fees, and dividing the result by
the total number of sides executed on our exchange.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Our average transaction fee per revenue side reflects the transaction fee we charge to our market participants per our publicly available pricing schedules. These schedules were
part of rule proposals that became effective upon filing pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934, as amended (the Exchange Act). The Securities and Exchange Commission may abrogate such rule proposals
within 60 days of filing if it determines that such action is necessary or appropriate in the public interest, for the protection of investors or otherwise in furtherance of the purposes of the Exchange Act.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | Members can have several contracts per trade. Trades represent the number of trades cleared through The Option Clearing Corporation, or the OCC. Market data revenue is generated on
a per trade basis, not on a contract basis.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | By issues we mean the number of securities underlying our options. We trade multiple options series on each underlying security.
|--- | ----------------------------------------------------------------------------------------------------------------------------------



|(10) | Excludes full-time equivalent employees of ISE Stock Exchange, LLC, beginning April 2006.
|---- | -----------------------------------------------------------------------------------------

We derive our data from our own records and data for the markets in which we compete from information published by or prepared for OCC and OPRA.



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##### Table of Contents

Results of Operations

QUARTER ENDED MARCH 31, 2007 VERSUS MARCH 31, 2006

Options Exchange Segment

Overview

Net income increased 29.2% to $16.7 million
during the three months ended March 31, 2007 from $12.9 million during the comparable period in 2006, primarily due to increased trading volumes on our options exchange. Our expenses increased 17.4% to $23.6 million during the three months
ended March 31, 2007 from $20.1 million during the comparable period in 2006, primarily due to increased incentive compensation and capacity costs.

Revenues



|                         |  |                              |      |      |   |        |  |   |          |   |  |       |  
|------------------------ |  | ---------------------------- | ---- | ---- | - | ------ |  | - | -------- | - |  | ----- | -
|                         |  | Three Months Ended March 31, |     
|                         |  | 2007                         |      | 2006 |   | Change |  |   | % Change |  
|                         |  | (in millions)                |     
|Revenues                 |  |                              |      |      |   |        |  |   |          |   |  |       |  
|Transaction fees         |  | $                            | 43.9 |      | $ | 36.9   |  | $ | 7.0      |   |  | 19.0  | %
|Member fees and other    |  |                              | 7.3  |      |   | 5.6    |  |   | 1.7      |   |  | 30.0  | %
|Market data              |  |                              | 4.7  |      |   | 5.1    |  |   | (0.3     | ) |  | -6.2  | %
|                         |  |                              |      |      |   |        |  |   |          |   |  |       |  
|Total revenues           |  |                              | 55.9 |      |   | 47.5   |  |   | 8.4      |   |  | 17.7  | %
|Cost of revenues         |  |                              |      |      |   |        |  |   |          |   |  |       |  
|Activity remittance fees |  |                              | 3.9  |      |   | 4.3    |  |   | (0.4     | ) |  | -10.3 | %
|License fees             |  |                              | 1.7  |      |   | 1.6    |  |   | 0.0      |   |  | 1.9   | %
|                         |  |                              |      |      |   |        |  |   |          |   |  |       |  
|Total cost of revenues   |  |                              | 5.6  |      |   | 6.0    |  |   | (0.4     | ) |  | -7.0  | %
|                         |  |                              |      |      |   |        |  |   |          |   |  |       |  
|Gross margin             |  | $                            | 50.4 |      | $ | 41.6   |  | $ | 8.8      |   |  | 21.2  | %

Transaction Fees

Transaction fee revenues increased 19.0% to $43.9 million during the three months ended March 31, 2007 from $36.9 million during the comparable period in 2006, primarily due to increased trading volumes on our
options exchange. This volume growth was due to several factors, including the following:



| |  |  | Industry ADV for equity options during the three months ended March 31, 2007 increased 25.4% from the comparable period in 2006.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ADV increased 15.8% over the same period; however our market share decreased to 30.2% from 32.7%.
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | Our ADV in index options was 45,000 during the three months ended March 31, 2007 compared to 28,000 during the comparable period in 2006.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------

Our average transaction fee per side increased to $0.130 during the three months ended March 31, 2007 from $0.125
during the comparable period in 2006. Over the same period our average net transaction fee per side, a measure we use to evaluate our revenues which excludes activity remittance fees and ETF and license fees, increased to $0.113 from $0.105.
Higher premium product volumes for which we charge non-broker-dealer customers as well as changes in our trading mix drove these increases. Firm proprietary trading activity, as a percent of our overall volumes, increased to 13.9% during the three
months ended March 31, 2007 from 10.9% during the comparable period in 2006. We believe this shift in mix is a sign of increased institutional trading. Additionally, we recorded higher cancellation fee revenues due to recent changes we
initiated in the calculation and the amount we charge for this fee. Partly offsetting these increases was a decrease in average transaction fees charged to our market makers based on our exchange reaching certain overall volume thresholds.

Member Fees and Other

Member
fees and other increased 30.0% to $7.3 million during the three months ended March 31, 2007 from $5.6 million during the comparable period in 2006. The increase was primarily driven by an increase in connectivity fees due to a pricing change
and revenues from our subsidiary, Longitude. In April 2006, we changed our exchange member connectivity fees to be based on an exchange members quote capacity usage versus login activity.

Market Data

Market data revenues decreased
6.2% to $4.7 million during the three months ended March 31, 2007 from $5.1 million in 2006 primarily due to our lower market share of trades. We accounted for 31.7% of total industry trades during the three months ended March 31, 2007 and
33.8% during the comparable period in 2006.



- 22 -



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##### Table of Contents

Expenses



|                                   |  |                              |      |      |   |        |  |   |          |   |  |       |  
|---------------------------------- |  | ---------------------------- | ---- | ---- | - | ------ |  | - | -------- | - |  | ----- | -
|                                   |  | Three Months Ended March 31, |     
|                                   |  | 2007                         |      | 2006 |   | Change |  |   | % Change |  
|                                   |  | (in millions)                |     
|Expenses                           |  |                              |      |      |   |        |  |   |          |   |  |       |  
|Compensation and benefits          |  | $                            | 12.8 |      | $ | 10.9   |  | $ | 1.9      |   |  | 17.1  | %
|Technology and communications      |  |                              | 4.3  |      |   | 3.5    |  |   | 0.8      |   |  | 23.4  | %
|Occupancy                          |  |                              | 1.3  |      |   | 1.3    |  |   | (0.0     | ) |  | -1.3  | %
|Professional fees                  |  |                              | 1.7  |      |   | 1.3    |  |   | 0.4      |   |  | 32.8  | %
|Marketing and business development |  |                              | 0.5  |      |   | 0.6    |  |   | (0.1     | ) |  | -13.7 | %
|Depreciation and amortization      |  |                              | 1.7  |      |   | 1.5    |  |   | 0.2      |   |  | 14.6  | %
|Other                              |  |                              | 1.3  |      |   | 1.0    |  |   | 0.3      |   |  | 30.2  | %
|                                   |  |                              |      |      |   |        |  |   |          |   |  |       |  
|Total direct expenses              |  |                              | 23.6 |      |   | 20.1   |  |   | 3.5      |   |  | 17.5  | %
|Reorganization                     |  |                              |     |      |   | 0.0    |  |   | 0.0      |   |  | N/M   |  
|                                   |  |                              |      |      |   |        |  |   |          |   |  |       |  
|Total expenses                     |  | $                            | 23.6 |      | $ | 20.1   |  | $ | 3.5      |   |  | 17.4  | %
|                                   |  |                              |      |      |   |        |  |   |          |   |  |       |  

Compensation and Benefits

Compensation and benefits expense increased 17.1% to $12.8 million during the three months ended March 31, 2007 from $10.9 million during the
comparable period in 2006. The increase was primarily due to higher stock-based compensation. We distribute a portion of our adjusted pre-tax earnings as incentive compensation to our employees in the form of restricted stock and cash. Higher
profitability levels in 2006 led to the higher current stock-based compensation.

Technology and Communication

Technology and communication expense increased 23.4% to $4.3 million during the three months ended March 31, 2007 from $3.5 million during the
comparable period in 2006 primarily due to a $0.5 million increase in spending on equipment and software in order to handle the increased quoting on our trading system. In addition, costs related to OMX increased $0.1 million for enhancements to our
options trading system.

Professional Fees

Professional fees increased 32.8% to $1.7 million during the three months ended March 31, 2007 from $1.3 million during the comparable period in 2006 due to higher legal expenses related to our litigation
concerning the exclusive listing of index options.

Marketing and Business Development

Marketing and business development expenses decreased 13.7% to $0.5 million during the three months ended March 31, 2007 from $0.6 million during the
comparable period in 2006 due to lower levels of spending on marketing and advertising material primarily due to timing of marketing programs.

Depreciation and Amortization

Depreciation and amortization expenses increased 14.6% to $1.7 million during the
three months ended March 31, 2007 from $1.5 million during the comparable period in 2006 due to higher amortization expense of the assets of Longitude which was acquired in March 2006.

Other Expenses

Other expenses increased 30.2%
to $1.3 million during the three months ended March 31, 2007 from $1.0 million during the comparable period in 2006. The increase was attributable to higher board fees as well as an increase in other general expenses to support our overall
growth.

Interest and Investment Income

Interest and investment income increased to $2.8 million during the three months ended March 31, 2007 from $1.6 million during the comparable period in 2006 as a result of higher average cash balances.

Provision for Income Taxes

Our tax provision
increased to $12.8 million during the three months ended March 31, 2007 from $10.1 million during the comparable period in 2006. Over the same period our effective tax rate decreased to 43.5% from 44.0% due to lower tax rates on our invested
cash.

Stock Exchange Segment

Our
stock exchange segment is still in its early stages of development. This segment recorded gross margin of $0.4 million in the three months ended March 31, 2007 primarily as a result of the launch of our displayed market in December 2006. We use
a maker-taker pricing method for our displayed market and have waived fees for our MPM platform through May 1, 2007. Total expenses increased to $3.9 million during the three months ended March 31, 2007 from $0.9 million during the
comparable period in 2006 primarily due to higher compensation and benefits expense reflecting higher staffing levels required to launch and operate the stock exchange. As discussed above, we do not recognize any losses from ISE Stock Exchange on a
consolidated basis.



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##### Table of Contents

Liquidity and Capital Resources

We presently finance our options exchange business primarily through cash generated by our operating activities. We believe that cash flows generated by our operating activities should be sufficient for us to fund our
current operations. In addition, we have access to an uncommitted $10.0 million credit facility and may have the ability to raise capital through issuance of debt or equity to new or existing investors through private and public capital markets
transactions, if necessary. We finance our stock exchange business through the cash initially raised from its strategic investors.

The
following table sets forth our consolidated net cash flows from operating activities, investing activities and financing activities for the periods indicated:



|                                                    |  |                              |         |   |      |   |         |  
|--------------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | -
|                                                    |  | Three Months Ended March 31, |        
|                                                    |  | 2007                         |         |   | 2006 |  
|Net cash provided by operating activities           |  | $                            | 4,870   |   |      | $ | 6,498   |  
|Net cash (used in)/provided by investing activities |  |                              | (11,137 | ) |      |   | 2,121   |  
|Net cash used in financing activities               |  |                              | (3,504  | ) |      |   | (257    | )
|                                                    |  |                              |         |   |      |   |         |  
|(Decrease)/increase in cash and cash equivalents    |  |                              | (9,771  | ) |      |   | 8,362   |  
|Cash and cash equivalents at beginning of period    |  |                              | 200,015 |   |      |   | 170,927 |  
|                                                    |  |                              |         |   |      |   |         |  
|Cash and cash equivalents at end of period          |  | $                            | 190,244 |   |      | $ | 179,289 |  

Our cash and cash equivalents are primarily comprised of investments in money market accounts and
highly liquid investments with maturities of less than 90 days. Assets readily convertible into cash consists of amounts due from our members for transactions executed on our options and stock exchange, which are principally reflected in our current
accounts receivable, less cash we hold in connection with our payment for order flow program which is discussed below. We charge members for their transactions on a monthly basis and collect these fees within five business days after the end of each
month pursuant to a standing agreement with OCC for options transactions and DTCC for stock transactions, where we have the ability to withdraw our non-contested fees from members security clearing accounts. Also included in amounts readily
convertible into cash are investments of our excess cash in U.S. Treasuries and municipal bonds, which are included in securities owned. Cash and cash equivalents, together with assets readily convertible into cash, accounted for 77.7% in the three
months ended March 31, 2007, and 70.3% in the same period prior year

Cash and cash equivalents decreased to $190.2 million as of
March 31, 2007 from $200.0 million as of December 31, 2006:



| |  |  | Our net cash provided by operating activities was $4.9 million during the three months ended March 31, 2007 primarily due to increased trading volumes on our
options exchange partly offset by a decrease in our compensation and benefits payable related to cash payment we made to our employees as part of 2006 year end compensation.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our net cash used in investing activities was $11.1 million during the three months ended March 31, 2007. We purchased fixed assets of $3.2 million primarily
for leasehold improvements relating to expansion of our data center in order to support our overall growth. Additionally, we purchased $8.0 million of available for sale securities, primarily municipal debt instruments.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our net cash used by financing activities was $3.5 million during the three months ended March 31, 2007. We repurchased $4.2 million of our common stock
tendered by our employees to satisfy tax withholding obligations in connection with the vesting of awards of restricted stock. We repurchased these shares based on their fair market value on the vesting date. We paid dividends of $1.9 million for
the three months ended March 31, 2007. Partly offsetting these decreases was a tax benefit of $2.4 million related to options exercised by our employees. Our taxes are reduced by the after tax effect of the difference between the fair market
value and strike price of the options our employees exercised.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of March 31, 2007 and December 31, 2006
included in cash and cash equivalents is $5.3 million and $0.6 million, respectively, for our payment for order flow program. Under this program we pay our EAMs on behalf of our market makers for order flow sent to the exchange. We assess fees
to our market makers, PMMs and CMMs, and distribute those funds to our EAMs. Each PMM has full discretion regarding the payment, and we administer the payments. Accordingly, we reflect the assessments and payments on a net basis with no impact on
revenues or expenses. When fees are assessed, we record an asset with a corresponding liability.

As of March 31, 2007 and
December 31, 2006, included in cash and cash equivalents is $34.8 and $37.8 million held for the exclusive use of ISE Stock Exchange.

As of March 31, 2007 and December 31, 2006, we had a letter of credit agreement totaling $0.4 million to satisfy lease commitments and administrative obligations.



Financial Condition

Our total assets increased to $402.0 million as of March 31, 2007 from $396.4 million as of December 31, 2006. This increase was primarily due
to operating cash proceeds resulting from higher transaction volumes. Also affecting our total assets were the following:



| |  |  | Our securities owned increased to $99.5 million as of March 31, 2007 from $92.8 million as of December 31, 2006. Our securities owned are comprised of
investments of our excess cash in U.S. treasuries and municipal bonds as well as investments in various mutual funds related to our long-term deferred compensation plan for our employees. Our balance of U.S. treasuries and municipal bonds increased
by $7.9 million. Mutual fund investments decreased by $1.1 million primarily due to the withdrawal of vested deferred compensation balances by employees.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our income tax receivable was $9.0 million as of March 31, 2007 compared to $9.6 million as of December 31, 2006.
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | Other assets increased to $11.1 million as of March 31, 2007 from $8.2 million as of December 31, 2006 primarily due to the purchase of intangible assets.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



- 24 -



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##### Table of Contents

Our total liabilities decreased to $94.2 million as of March 31, 2007 from $101.8 million as of
December 31, 2006. This decrease was primarily due to a decrease in our compensation and benefits payable due to the payment of incentive compensation awards for 2006 performance and exercises of vested balances in our employee profit-sharing
plan in the three months ended March 31, 2007.

We recorded $33.3 million of minority interest representing minority
stockholders interest in ISE Stock Exchange as of March 31, 2007.

Contractual Obligations

The following table summarizes our future cash payments associated with contractual obligations as of March 31, 2007, which are primarily operating
leases for office space and equipment and contractual agreements for trading software license technology enhancements and support of our core trading system from OMX:



|                           |  |                        |        |                 |   |             |  |             |        |              |   |       |  |   |      
|-------------------------- |  | ---------------------- | ------ | --------------- | - | ----------- |  | ----------- | ------ | ------------ | - | ----- |  | - | -----
|                           |  | Payments due by Period
|                           |  | Total                  |        | Less than1 Year |   | 1 to 3Years |  | 3 to 5Years |        | After 5Years
|Operating leases           |  | $                      | 27,922 |                 | $ | 7,198       |  | $           | 9,567  |              | $ | 4,380 |  | $ | 6,777
|OMX purchase obligations   |  |                        | 20,088 |                 |   | 7,793       |  |             | 9,230  |              |   | 3,065 |  |   |     
|Other purchase obligations |  |                        | 1,403  |                 |   | 375         |  |             | 1,028  |              |   |      |  |   |     
|                           |  |                        |        |                 |   |             |  |             |        |              |   |       |  |   |      
|Total                      |  | $                      | 49,413 |                 | $ | 15,366      |  | $           | 19,825 |              | $ | 7,445 |  | $ | 6,777
|                           |  |                        |        |                 |   |             |  |             |        |              |   |       |  |   |      

Our operating lease commitments primarily relate to obligations under operating leases with
initial non-cancelable terms in excess of one year for office space and computer equipment. OMX purchase obligations relate to contractual agreements for trading software licenses, technology enhancements and support of our core trading system from
OMX. Other purchase obligations relate to minimum license fees for certain index options.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Market risk to us generally represents the risk of changes in the value of financial instruments that might result from fluctuations in interest rates and equity prices. We have internal processes governing our management of market risks in
the normal course of our business operations. Furthermore, we have not entered into any derivative contracts to mitigate such risks, though we may in the future.

Interest Rate Risk

In order to maximize yields, we invest portions of our excess cash in short-term interest earning
assets, primarily money market instruments at commercial banks and U.S. treasuries and municipal bonds with maturities of less than two years, which totaled $281.9 million as of March 31, 2007 and $288.5 million as of
December 31, 2006. We do not anticipate that changes in interest rates will have a material impact on our financial condition, operating results or cash flows.

Equity Price Risk

We do not trade securities for our own account nor do we maintain
inventories of securities for sale. However, we do have investments in various mutual funds that we hold on behalf of our employees as part of our previous long-term performance-based profit-sharing plan. Under the plan, fund awards were granted to
our employees, which they in turn invest in various mutual fund investments. Employees vest in the distributions over a period of three years. The participating employees bear the risk of the vested portion of the investments, and we bear the risk
of the unvested portion. In addition, we have purchased U.S. treasuries and municipal bonds with our available excess cash in order to increase our return. As a result, we are exposed to market price risk. This risk is estimated as the potential
loss in fair value resulting from a hypothetical 10% adverse change in quoted market prices and amounted to approximately $0.2 million and $0.3 million as of March 31, 2007 and December 31, 2006, respectively.





|Item 4. | Controls and Procedures
|------- | -----------------------

As of the end of the
period covered by this report, the Companys management evaluated, with the participation of the Companys Chief Executive Officer and President and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as
such term is defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) in providing reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in the SECs rules and forms, and is effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated
by the Companys management, including the Companys Chief Executive Officer and President and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. Based upon that evaluation, the Chief Executive Officer
and President and Chief Financial Officer have concluded that the Companys disclosure controls and procedures were effective as of the period covered by this report. There have not been any changes in the Companys internal control over
financial reporting (as such term is defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act) during the last period to which this report relates that have materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.



- 25 -



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##### Table of Contents

Part II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

We are subject to routine
reviews and inspections by the SEC as well as legal proceedings arising in the ordinary course of business. We are not currently a party to any litigation or other legal proceedings that we believe are reasonably likely to have a material adverse
effect on our operating results, financial conditions or cash flows.



|Item 1A. | Risk Factors
|-------- | ------------

Our business faces significant risks.
The risks described below update the risk factors described in our Annual Report on Form 10-K for the fiscal year ending December 31, 2006 and should be read in conjunction with those risk factors. The risk factors described in this
Form 10-Q and our 2006 Form 10-K may not be the only risks we face. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations. If any of the following risks actually
occur, our business, financial condition, results of operations or prospects could be affected materially.

Our merger agreement with Eurex requires
us to obtain their written consent before undertaking certain material transactions.

In accordance with the provisions of the Eurex
merger agreement, we are required to receive written consent (which consent cannot be unreasonably withheld, conditioned or delayed), from Eurex prior to undertaking certain actions including actions relating to capital expenditures, dividend
payments (other than our regular $.05 quarterly dividend), share issuances, acquisitions, debt incurrence, amendments to our charter or bylaws and material contracts or certain other material transactions. We cannot assure you that we would
receive this consent to undertake these actions, which could impact the operation of our business.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

The
table below sets forth the information with respect to purchases made by the Company of our common stock during the three months ended March 31, 2007. No shares were repurchased during the month of February 2007.



|                                   |  |                                     |  |                             |       |                                                                                  |   |                                                                                |  
|---------------------------------- |  | ----------------------------------- |  | --------------------------- | ----- | -------------------------------------------------------------------------------- | - | ------------------------------------------------------------------------------ | -
|Period                             |  | Total Number of Shares Purchased(1) |  | Average Price PaidPer Share |       | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |   | Maximum Number of Shares that May Yet Be
Purchased Under the Plans or Programs
|January 1, 2007 - January 31, 2007 |  | 64,927                              |  | $                           | 46.79 |                                                                                  |  |                                                                                | 
|March 1, 2007  March 31, 2007     |  | 24,844                              |  | $                           | 46.57 |                                                                                  |  |                                                                                | 

---

|(1) | These shares represent shares of
common stock that were tendered by employees to the Company to satisfy tax withholding obligations in connection with the vesting of awards of restricted stock. Such shares are repurchased by the Company based on their fair market value on the
vesting date.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 5. | Other Information
|------- | -----------------

On May 8, 2007 the Company
declared a quarterly dividend of $0.05 per share of Class A common stock to stockholders of record as of June 22, 2007. The dividend is payable on June 29, 2007.

On May 8, 2007, the Company announced that two new members are joining its Board of Directors. Joseph Stefanelli and Kenneth Vecchione are replacing
Ivers Riley and Mark Kritzman who are retiring from the Board due to term limits. In addition to the newly elected Board members, Barbara Diamond and Richard Schmalensee were re-elected to serve another two-year term on the Board, and David Krell,
the Companys President and Chief Executive Officer, was re-elected to serve a one-year term.



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##### Table of Contents

|Item 6. | Exhibits
|------- | --------



|       |  |                                                                                                                      
|------ |  | ---------------------------------------------------------------------------------------------------------------------
|       | 
|10.21* |  | Agreement dated March 5, 2007 between International Securities Exchange, LLC and TSX Group Inc.                      
|       | 
|31.1   |  | Certification by the Chief Executive Officer and President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|       | 
|31.2   |  | Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.              
|       | 
|32.1   |  | Certification by the Chief Executive Officer and President pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|       | 
|32.2   |  | Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.              

---

|* | Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                   |  |  |  |                                                  |  |                     |  |                                                                                 
|------------------ |  |  |  | ------------------------------------------------ |  | ------------------- |  | --------------------------------------------------------------------------------
|                   |  |  |  | INTERNATIONAL SECURITIES EXCHANGE HOLDINGS, INC.
|                   |  |  | 
|Date: May 10, 2007 |  |  |  | By:                                              |  | /s/ Bruce Cooperman
|                   |  |  |  |                                                  |  | Name:               |  | Bruce Cooperman                                                                 
|                   |  |  |  |                                                  |  | Title:              |  | Chief Financial Officer(Duly Authorized Officer and Principal Financial Officer)



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