An interview with Jeff Sprecher
Founder, Chairman & CEO, Intercontinental Exchange
Part 2 - ICE's Expansion into Clearing
How did ICE’s expansion to futures impact the direction of the company?
Acquiring the International Petroleum Exchange (IPE) was significant for ICE because the exchange had a core set of energy benchmark products upon which we were able build as the need for cleared energy contracts grew. We quickly responded to the rising demand for standardized, cleared, transparent markets, and London’s role as a global market center for energy trading increased as a result.
We expanded the exchange’s product across the oil, natural gas, power, coal and emissions markets, growing from a handful of products in 2001. And in our cleared OTC energy markets, we eventually grew to 100 contracts, up from two cleared OTC contracts in 2002. But we were eventually limited in new product development opportunities due to competing interests of the horizontal clearing model, so we knew it was time to build our own clearing house in London.
How did you build a clearing house? And why did you start in London?
In 2006, when we had been publicly listed for about a year, we had the opportunity to use our technology to move the New York Board of Trade (NYBOT) to electronic markets in the same way the former IPE had transitioned a year earlier. We acquired the NYBOT for $1 billion in a stock and cash transaction. It was a smaller exchange with 44 million contracts traded in 2006 (which grew to 365 million contracts in 2015), but these were important global contracts - sugar, cotton, coffee and the U.S. Dollar Index for example - and they had strong potential outside of the confines of a floor.
In addition the NYBOT had its own clearing house, which is today ICE Clear U.S. This clearing house provided us with fairly complete and modern, web based clearing technology. We closed on the NYBOT transaction in January 2007 and got to work on the electronic transition, which happened quickly based on pent up demand. Later that spring, we announced our plans to build the first new clearing house in London for over a century. London was the obvious choice given the location of our global energy markets, along with the need for additional clearing solutions.
This was one of a handful of inflection points for the company. We were getting deeper into data, having launched our data services a few years earlier. The transition to electronic trading was well underway. And we were looking at a number of acquisitions. But most often, our requirements came back to having a flexible clearing solution and was evident we needed to build our own clearing house to achieve this.
There was skepticism that it could be done and, for the next year, we worked to overcome that and build what is now the leading futures clearing house in London, and the first new clearing house in the City in over a century. It was launched during the financial crisis in 2008, just as the importance of central clearing was becoming even more evident.
ICE Clear Europe, under Paul Swann’s leadership, clears thousands of products and has brought increased sophistication to risk management systems, as well as capital efficiencies for market participants through the real-time valuation of portfolios. We have continued to innovate new solutions at ICE Clear Europe. Shortly after launch, we moved quickly to build and launch a clearing model for European Credit Default Swaps (CDS), which has a separate risk framework, guaranty fund and governance.
Today, ICE operates six clearing houses across the globe. Most recently, in December 2014, we acquired a majority stake in ICE Clear Netherlands providing us with clearing infrastructure in continental Europe.
How much did you invest in and what have the results looked like?
Over the last 15 years, ICE has invested over £4 billion in our UK operations. We have grown from less than 100 to approximately 1,000 employees today. And this investment has accompanied growth in UK revenues which are up 10-fold over the same period to about $1.4 billion in 2015, which equates to an approximate annual growth rate of 30% per annum.
Acquiring the IPE in 2001 set the stage for the initiatives we’ve undertaken internationally, both by growing organically, as well as acquiring strategic assets. We’ve focused on mission critical market infrastructure – often infrastructure that’s underutilized or underappreciated – and repurposed the technology, products or services to meet broader customer needs. So our acquisitions have made it possible to offer more robust, diverse solutions around the world.
Next week: Part 3 - The New York Stock Exchange and Data