The rising demand for exchange traded funds has made the International Securities Exchange, the country’s second-largest equity options exchange, an up-and-coming index provider for smaller, “innovative” fund sponsors.

ISE’s business development team has created over 30 proprietary indices that serve as benchmarks to 20 ETFs provided by First Trust , Direxion and UBS , writes Jeff Schlegel for Financial Advisor Magazine. [Index ETFs Chip Away at Active Fund Industry]

“ISE is a well-established options exchange owned by Deutsche Börse that has deep pockets and credibility on Wall Street,” Maz Jadallah, founder and CEO of AlphaClone LLC, said in the article, explaining why he partnered with ISE on his ETF, AlphaClone Alternative Alpah ETF (ALFA) . “That gives the fund credibility with institutional investors.”

In January, ISE formally announced its new direction into the ETF indexing business, with its new product development group,ISE ETF Ventures. The group will offer a range of financial, marketing and logistical assistance in creating “innovative” ETFs. [Rising Interest for Alternative, ‘Enhanced’ Index ETFs]

“We’re putting our money where our mouth is by putting our capital to work to create new products,” Kris Monaco, head of ISE ETF Ventures, said in the article.

For instance, ISE helped develop natural resource indices for the line of PureFunds ETFs.

“It came down to us both having similar ambitions to launch niche natural resource products not yet covered by ETFs,” Paul Zimnisky, CEO of PureFunds, said in the article.

In February, ISE and IndexIQ , a provider known for its alternative offerings, revealed that they were working on a line of physical commodities ETFs.

“We’re looking for anything that pushes the envelope in terms of how far ’40 Act products in a wrapper have gone so far,” Monaco added. “We’re looking at options-based ideas that can be packaged into an ETF.”

For more information on indexing in ETFs, visit our indexing category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.