The IntercontinentalExchange

An all-electronic exchange that has become a giant


As futures exchanges go, The IntercontinentalExchange or ICE is a relative newcomer to futures markets. However, the exchange has made incredible inroads since its formation in 2000. In that year ICE introduced their first product, a transparent marketplace for over-the-counter or OTC energy markets. The ICE concept was an innovative and new approach, at the time, to risk and transparency for trading in markets.

An over-the-counter market is one in which dealers (who are generally banks, financial institutions or companies) act as market makers by quoting prices at which they will buy and sell an asset. OTC trades between any two participants in an OTC market can occur without others being aware of the price or even that the trade took place. Prior to the Dodd-Frank legislation in 2010, OTC markets were less transparent than futures exchanges and subject to far fewer regulations. The introduction of ICE in 2000 brought transparency and clearing to OTC energy markets.  

In 2001, ICE expanded its business and entered the futures arena by purchasing the largest energy futures exchange in Europe- the International Petroleum Exchange. In 2002, ICE began clearing OTC energy contracts. During the two previous years, ICE only brokered OTC energy contracts, leaving settlement and credit considerations to buyers and sellers after the transaction.

As a clearing exchange, in 2002 ICE became the contract party to the buyer and the seller, removing credit considerations and providing anonymity for each party during each step of a transaction. As a clearing organization, ICE also organized a system of margining open long or short positions in order to guaranty contract performance.

In 2005, ICE became a publicly traded company; listing its stock on the New York Stock Exchange. In 2007, ICE acquired the New York Board of Trade and the Winnipeg Commodity Exchange. The New York Board of Trade listed commodity futures and options contracts in coffee, sugar, cocoa, cotton and frozen concentrated orange juice. The Winnipeg Exchange is Canada's only commodities futures exchange listing futures contracts in barley and canola (rapeseed). In 2008, ICE launched ICE Clear Europe, the United Kingdom's first new clearinghouse in a century. The only other commodity clearinghouse in London prior to ICE's arrival was the London Metal Exchange (LME). At the same time, ICE acquired Creditex and YellowJacket in order to bolster its business and add expertise in new areas.

In 2009, ICE launched two clearinghouses for Global Credit Default Swaps (CDS). ICE quickly became the global leader in CDS clearing. In 2010, ICE acquired the Climate Exchange, which lists contracts on emission allowances in the carbon markets. The acquisition made ICE the global leader in these carbon markets.  In 2013, ICE purchased a majority stake in APX Endex and launched ICE Endex, the leading continental European energy exchange handling the gas and power (electricity) markets.

In perhaps its biggest and most high profile acquisition, ICE acquired NYSE Euronext in 2013 to create one of the world's premier financial market operators. In 2013, ICE also added interest rate products to its suite of products.

In 2014, ICE acquired a majority stake in Holland Clearing House- a continental European clearinghouse. Additionally, ICE licensed swap future methodology from Eris and invested in bitcoin wallet Coinbase in 2014. Along with the CME, ICE also clears over-the-counter swap transactions in the wake of the Dodd-Frank Act.

The meteoric rise of the IntercontinentalExchange has been a story of innovation and aggressive growth. Today ICE's markets include futures and options on interest rates, commodities, indexes and foreign exchange. ICE is a global leader in equities and equity options.

ICE is the most diversified exchange in the world today.

ICE has a market capitalization of $23.67 billion as of January 20, 2015. Jeffrey Sprecher is the Chairman, Chief Executive Officer and Founder of ICE. He acquired the predecessor company to ICE in 2000 and built a global trading giant worth over $23 billion in just 15 years.

Update on ICE

Since I wrote the initial article about ICE back in early 2015, the value of the company has increased by over 18.8% to $28.11 billion. The performance of the company is particularly strong given that the Dow Jones Industrial Average closed at 17,515.23 on January 20, 2015 and on February 8, 2016, it was around the 15,830 level -- a decline of 9.6% over the period. Over the same period, ICE stock has appreciated from $207.97 per share to $236.21 over the same period. One sign of the success of ICE is that on February 4, 2016 the company increased their dividend to 85 cents per share, an increase of 13.5%.

Volatility in markets over the past year has benefited ICE in that it attracts more market activity. Market activity translates into volume and profits for ICE and all exchanges around the world. On February 3, 2016, the exchange reported that year-on-year volume in January increased 15% with interest rate products increasing 27%, oil volume up 23% and cash equities 28% higher. Exchange profits thrive on volume and the Intercontinental Exchange has experienced an increase in profitability given wider trading ranges and more opportunities for market participants.