You started Intercontinental Exchange (ICE) in 1997 by buying a technology start-up for $1 that was aimed at providing transparent pricing for electric power companies. What was your vision?
I wanted to create a transparent market where market prices would be highly accessible to anyone in any location and build the technology solution to distribute those prices.
In the three years following the purchase, I worked alongside Chuck Vice, who is now President & COO at ICE, and a small team of technologists to build web-based technology that would make us a borderless company that served all interested buyers and sellers of energy. Simultaneously, we were building an understanding of the needs of transacting in the electric utility markets - specifically buying and selling power as a way of balancing the electric power grid and hedging natural gas prices as an input.
I think part of the reason we have continued to grow is that we put ourselves in the mindset of our customers in terms of understanding their business and their needs. I started the company because I wanted to become a customer; having spent a number of years developing power plants, I saw the need for a level playing field as a commercial participant. We've looked at all of our markets from the perspectives of our customers since day one.
What was the groundwork required during the three years between 1997 and 2000 to develop and launch ICE in May 2000?
For the first three years, the company, which consisted of myself and eight colleagues, worked on the original version of the ICE trading platform and Chuck and I went on the road to talk with potential customers. We met with over 100 companies in those first few years — mostly companies in the oil, natural gas and power business. At the time, the market was undergoing a lot of change following energy deregulation and more competition in the wholesale natural gas and power markets. As a result, market participants wanted a level playing field to compete with incumbents and were looking for new market models.
While electronic trading was not the norm then, these companies were looking for the transparency and neutrality of an exchange-style trading model. To support their transition to electronic trading, we designed the technology around their workflow, which led to a lot of innovative features in the platform. These included pre-trade credit limits, counterparty credit filters, electronic trade confirmation and other features that are commonplace today, but these were relatively new concepts then.
When we launched the company with our completed trading platform in May 2000, we gave it the name Intercontinental Exchange (ICE) to reflect our ability to cross borders and to serve global markets using our innovative, web-based, technology platform. The result of that decision is that today more than 70 countries transact in ICE's markets, and we've efficiently scaled our exchange and clearing infrastructure across the UK, Netherlands, Singapore, Canada and the US.
After starting out as an over-the-counter (OTC) trading platform, how did ICE move into futures exchanges and clearing?
We saw an opportunity to leverage our technology expertise and to gain access to clearing in 2001 when the International Petroleum Exchange of London (IPE) was looking to evolve from floor trading to electronic trading. At the time, the IPE was a regional exchange that offered oil futures contracts and had less than 25% of global oil futures market share. Virtually all the volume traded on the IPE was transacted through the trading floor, which was located near St. Katharine's docks, across from the Tower of London. At the same time, the owners of the IPE, which were largely companies in the energy industry, were watching developments at the London International Financial Futures & Options Exchange (LIFFE) and seeing how rapidly technology was changing their markets. This created an increased urgency and understanding of the technology requirements to becoming a global market in the Internet age.
When we completed the acquisition of IPE, now known as ICE Futures Europe, we quickly got to work on two pivotal work streams, led by many of team members who are still there today — including David Peniket, who was Head of Finance at IPE and is now President & COO of ICE Futures Europe. The first project was developing new cleared swap products, which we began rolling out in 2002, and long before the broader recognition of the importance of clearing. The second was building out the electronic futures and options markets on the ICE trading platform, which dramatically expanded the former IPE's share of traded oil futures volume and transitioned it from a regional to a global exchange.
In February 2005, against many warnings of failure, we successfully transitioned the IPE crude and refined oil markets, which included Brent and Gasoil futures, to electronic trading. David and his team have led enormous progress in making the ICE Brent contract a leading global benchmark for the oil industry. I don't think anyone could have predicted how successful it's been; ICE Futures Europe has reported 18 consecutive record years of trading activity. Equally important, the exchange has served as a key market for the development of innovative, new products and provided the opportunity to create the first new clearing house in London for over a century.
Originally published June 2016