This compares to $12.4 million, or $0.32 per share on a fully diluted basis, in the same period in 2006.

Total consolidated revenues for the quarter increased 18.6% to $56.4 million from $47.5 million in the prior year. Gross margin, or total revenues less cost of revenues, increased 21.5% to $50.5 million from $41.6 million in the first quarter of 2006. Included in our consolidated results are the revenues and expenses from the ISE Stock Exchange, our stock exchange business segment.

Total revenues for the quarter from our options exchange business segment increased 17.7% to $55.9 million. Gross margin, or total revenues less cost of revenues, increased 21.2% to $50.4 million. The average daily volume of equity and index options contracts traded increased 16.3% to 2.8 million contracts. Our stock exchange business segment recorded gross margin of $0.4 million, interest income of $0.5 million, total expenses of $3.9 million and minority interest of $3.0 million. Our stock exchange has no impact on our net income as losses are allocated solely to the minority owners. Please refer to the section titled "Segment Information" for further information.

"The economic climate in the first quarter provided a strong catalyst for growth in the options industry and ISE remained at the forefront of this growth," said David Krell, ISE's President and Chief Executive Officer. "The volatility in the financial markets spurred additional demand for options, and ISE continued to meet this demand with nand with new and innovative products that address and anticipate the needs of investors. The cyclical trends that we have witnessed in the financial markets, together with the ongoing secular growth that we have experienced, bode well for the options industry," said Krell.

"We remain focused on realizing the organic growth opportunities in our options business, while expanding into new geographic markets and complementary asset classes. We recently announced our plans to launch a new derivatives exchange, DEX(TM), in partnership with the TSX Group. DEX is our first venture outside of the U.S. markets and we expect to begin operations in March 2009. In launching this new business, we will be able to trade options, futures and options on futures on a variety of Canadian securities."

"We are also excited about our latest product, ISE FX Options(TM), which we launched earlier this month. The foreign exchange market continues to post impressive growth rates, and we are optimistic that there is significant untapped demand for this asset class. ISE FX Options provides investors with effective risk management strategies and new trading opportunities within the growing foreign exchange asset class. Going forward, we will continue to introduce new products and new innovations, as we grow the overall market and garner our fair share of this business," concluded Krell.

First Quarter Results - Options Exchange

Income Statement

Revenues

Transaction fee revenues increased to $43.9 million from $36.9 million last year due to continued strong growth in trading volumes. Member fees and other revenues increased to $7.3 million from $5.6 million in the same period last year due to an increase in connectivity fees which are charged to market makers based on quote capacity usage. There was also an increase in connectivity fees from our subsidiary, Longitude, which was acquired in March 2006. Market data revenues decreased to $4.7 million from $5.1 million in the prior year quarter due to our lower market share of trades.

Cost of Revenues, Gross Margin

Cost of revenues for the first quarter decreased to $5.6 million from $6.0 million in the prior year quarter. Gross margin increased to $50.4 million from $41.6 million in the first quarter of 2006.

Expenses

Total expenses for the first quarter of 2007 increased to $23.6 million from $20.1 million in the first quarter of 2006. This increase was principally due to an increase in compensation and benefits expenses, in part attributable to higher stock-based incentive compensation. Technology and communications expenses increased to $4.3 million from $3.5 million due to increased network and capacity costs for our trading system. Professional fees increased to $1.7 million from $1.3 million due to higher legal fees. Marketing and business development expenses decreased to $0.5 million from $0.6 million due to the timing of marketing programs. Depreciation and amortization increased to $1.7 million from $1.5 million due to higher amortization expense of the assets of Longitude.

Income, Margins and Taxes

Our pre-tax income for the first quarter of 2007 increased 28.1% to $29.5 million from $23.1 million last year. Interest and investment income increased to $2.8 million from $1.6 million primarily due to interest income from higher cash balances.

Our pre-tax margin for the first quarter increased to a record 58.6% from 55.5% last year.

Our tax rate decreased to 43.5% from 44.0% in the first quarter of 2006 due to lower tax rates on our invested cash.

Net income for the first quarter increased 29.2% to $16.7 million from $12.9 million in the prior year quarter.

Consolidated Balance Sheet

As of March 31, 2007, ISE had cash and cash equivalents and investments in securities of $289.8 million, total assets of $402.0 million, and stockholders' equity of $274.5 million. The Company recorded minority interest of $33.3 million as of March 31, 2007, which represents interests of minority shareholders in the ISE Stock Exchange. Included in cash and cash equivalents is $34.8 million from the ISE Stock Exchange which is reserved for its use. There were approximately 38.2 million shares of common stock outstanding.

First Quarter Business Highlights - Options Exchange

• ISE was the largest equity options exchange for the first quarter of 2007 based on total equity options trading.
• On January 9, 2007, ISE's Board of Directors declared a quarterly dividend of $0.05 per outstanding share of its Class A Common Stock payable on March 30, 2007 to holders of record as of the close of business on March 23, 2007.
• On February 12, 2007, ISE completed the initial rollout of its Second Market for options. Approximately 700 options classes now trade in the Second Market. ISE also announced the addition of three Second Market Competitive Market Makers (CMMs(R)): Lehman Brothers Inc., DC Trading Partners LLC and Monadnock Capital Management, LP. The total number of Second Market CMMs is now thirteen.
• On February 21, 2007, ISE launched an enhanced version of ISEE Select(TM), its customized sentiment data offering. New features include the ability to chart intraday and historical sentiment values as well as the capability to download the historical values for further analysis. ISE also announced that OptionsDevil, Schaeffer's Investment Research, SentimenTrader, and Terra Nova Financial, LLC joined the ISEE Select marketing alliance.
• On February 26, 2007, ISE entered into an agreement with First Trust Advisors L.P. to create and list Exchange-Traded Funds (ETFs) on three proprietary ISE indexes. First Trust plans to develop ETFs based on the ISE Water Index (underlying index ticker: HHO), ISE-Revere Natural Gas Index (underlying index ticker: FUM), and ISE ChIndia Index (underlying index ticker: to be determined).
• On February 27, 2007, ISE set a new record daily trading volume of 5,531,875 equity and index options contracts. Trading volume in the Nasdaq-100 Index Tracking Stock (QQQQ) also reached a new high of 1,032,296 contracts.
• On March 5, 2007, ISE and TSX Group announced the creation of DEX(TM), a new Canadian derivatives exchange. DEX, which is scheduled to begin operations in March 2009, will be owned 52% by TSX Group and 48% by ISE and will list and trade options, futures and options on futures on a range of Canadian securities.
• On March 9, 2007, ISE traded its 2 billionth options contract. This trade, which was in the Nasdaq-100(R) Trust Shares (QQQQ), took place between Penson Financial Services, Inc. and Ronin Capital, LLC.
• On March 27, 2007, ISE announced a partnership with Optionetics, Inc., a recognized leader in options education, in a joint effort to educate retail investors about ISE FX Options(TM). Optionetics will incorporate information and trading strategies for ISE FX Options into its two-day seminar series, Trading the Foreign Exchange Markets, which are executed by its affiliate, FX Trading Education Corp. (FXTE).
• On March 28, 2007, ISE announced that Timber Hill LLC, the market making subsidiary of Interactive Brokers, will serve as the Primary Market Maker (PMM(R)) for the first four currency pairs of ISE FX Options that will be listed on the Exchange. Additionally, Citigroup Derivatives Markets Inc., Lehman Brothers Inc., and Optiver US, LLC will act as Competitive Market Makers (CMMs(R)) in a variety of the products. Trading will initially take place in the following four currency pairs: USD/EUR (Symbol: EUI), USD/GBP (Symbol: BPX), USD/JPY (Symbol: YUK), and USD/CAD (Symbol: CDD).

First Quarter Business Highlights - Stock Exchange

• On January 24, 2007, the ISE Stock Exchange added all of the securities that comprise the S&P 1500 to its fully-displayed stock market. Additionally, the ISE Stock Exchange now offers full route-out capabilities to prevent trade-throughs.
• On February 5, 2007, ISE announced that Lava Trading Inc. added the ISE Stock Exchange as an equity execution destination. Lava joins other trading solutions providers connected to the ISE Stock Exchange, including InstaQuote, MIXIT, Neovest, Portware, Orc Software, and Order Execution Services.
• On February 13, 2007, ISE completed the rollout of its fully-displayed stock market for the ISE Stock Exchange. Traders can now access approximately 6,000 National Market System (NMS) securities through both ISE's non-displayed liquidity pool, MidPoint Match(TM) and its displayed market.
• On March 5, 2007, the Regulation NMS Order Protection Rule went into effect for exchanges. The ISE Stock Exchange was created to operate most effectively in a Reg NMS environment and was fully compliant prior to the March effective date.

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