An interview with Jeff Sprecher
Founder, Chairman & CEO , Intercontinental Exchange
Part III - ICE's Ongoing Evolution to Serve Markets
There have been many inflection points for the company, including the launch of ICE Clear Europe, which took place during the global financial crisis in 2008. How did that impact the path that ICE was on in terms of overall strategy and performance?
We started out with a mission to provide transparent, efficient markets to help customers manage risk, and that set of capabilities positioned us well during the financial crisis. The need for risk management increased during this volatile, uncertain time, which validated our investment in clearing. During the financial crisis, we started to see bilateral trading moving to a centrally cleared model where positions are collateralized and monitored daily; that transition is still happening today.
To address the evolving needs we saw in the market during and in the years following the financial crisis, we approached the opportunities with a mix of buying and building. We like building our own solutions, especially when that involves new technology, but we’ll buy when we need to speed our time to market to serve customers. A good example of that is the acquisition of the New York Board of Trade in 2007 where we gained our first clearing services and technology, which we then leveraged to build ICE Clear Europe. We subsequently acquired The Clearing Corp, which had a solid risk model for clearing credit default swaps (CDS) but needed a governance and operational framework, to get CDS clearing off the ground quickly.
We’ve grown every year since we went public in 2005, including during the financial crisis. Our ability to achieve such growth is directly tied to staying connected to our customers. Throughout all our lines of business – whether it’s innovating around clearing, exchanges, data, technology or listings – we’re focused on identifying the problems our customers are facing and creating solutions for those situations.
What prompted the announcement in 2012 of ICE’s acquisition of what was then NYSE Euronext?
There were a couple factors to the NYSE Euronext deal. The first was the attractiveness of Liffe, which enabled us to add European interest rates to our product portfolio and transform ICE Futures Europe and ICE Clear Europe into a multi-asset derivatives exchange and clearing house.
The second factor was the understanding that the NYSE has a lot of great core assets; it’s the leading exchange when it comes to global corporate listings, ETF listings, and equity trading. On top of that, the NYSE is a world-respected brand with a tremendous network of listed companies and an unmatched value proposition. We experienced it firsthand with our own IPO on the NYSE in 2005. Standing on that podium, we got to experience that milestone and see the power of the capital markets in driving growth – it’s incredible. So we knew in 2012 that NYSE had an exceptional set of core assets, but we also knew it could be even stronger.
We’ve successfully integrated 15+ acquisitions since 2001, and we were able to apply our learnings from those experiences pretty much across the board with the NYSE’s operations. We spun out Euronext in a highly successful IPO, and created a strong, independent competitor in European equity markets. We migrated the Liffe products to our trading and clearing systems, strengthening the distribution and functionality of those markets and we’ve subsequently launched many new products there.
We’ve continued to strengthen the NYSE business with measurable results – not just in the strong revenue growth and right-sizing the expense base, but in leadership in capital raising and consistent increases in equity market liquidity. We’ve approached NYSE the same way we approach our other businesses – by listening to our customers and solving their needs.
NYSE President Tom Farley stays remarkably connected to our listed community and our trading customers and, as a result, we’re doing a lot of work right now to better meet their needs. Perhaps most importantly, we’re driving innovation and technology enhancements, advocating for less complex markets and leading by example. ICE’s technology expertise is playing a key role in how we run the NYSE. For example, our new trading platform, NYSE Pillar, when fully implemented, will enable market participants to connect to all our equities and options markets using a single user interface.
How has the NYSE expanded or changed ICE’s broader business strategy?
When we bought the NYSE, we immediately took a leadership role in strengthening the structure of the equities markets. The US equity markets, despite their global leadership for capital-raising, have become too complex, in my view. So, we quickly moved to reduce order types, invested in streamlining our trading platforms, and reorganized the business around highly accountable, customer responsive teams.
Today, we are working with the industry to advocate for investors and listed companies and promoting policies that safeguard a transparent securities marketplace. We’ve hosted panels across our listed companies and key industry stakeholders, drafted whitepapers, and advocated in front of regulators in an effort to reduce the complexity of U.S. equities markets. Importantly, we prioritize price discovery over speed by continuing to evolve our unique and proven designated market maker (DMM) model. Our market model offers lower volatility and tighter spreads, thanks to the DMM obligations and the support our model offers listed companies.
In terms of how that’s changed our business strategy, I think it was a natural expansion that took our leadership in the derivatives space and broadened it into the securities space. In the time that we’ve owned it, the NYSE has increased market share from 22% to 24.5% of average daily trading volume. We’ve ensured that the business priorities are listings-centric, because strong markets are just one component of our capital raising platform. Today, the NYSE is home to 2400 listed companies, which employ over 40 million employees.
You now operate a network of 11 exchanges and 6 clearing houses, and you’ve recently become a leader in market data. How does the growing data business fit in?
Our data services provide transparency, information, analysis, and connectivity, all of which is consumed by market participants to manage risk across markets and instruments. Lynn Martin, Head of ICE Data Services, would be the first to tell you that our data business, just like our exchange and clearing businesses, is a result of customer demand. Our customers rely on data, trading and risk management platforms across their workflow and, when well-coordinated, they create a strong value proposition.
While Interactive Data, SuperDerivatives, ICE, and NYSE data are each solid data businesses in their own right, we believe they'll be much more valuable to our customers and to our shareholders on a combined basis. Our customers' needs are not limited to exchange-traded data. The broader market for fixed income is vast, and Interactive Data’s services are centered on the changes taking place in this over-the-counter market.
The secular trends driving data include the standardization of products for electronic trading and clearing, and the need to trade with algorithms and quantitatively-driven programs. The regulatory requirements for independent valuation have also raise the demand for data. Finally, the trend toward indexation and passive investing, as seen in our strong ETP market performance at NYSE Arca, is driving more data consumption. We believe that data and connectivity are deeply linked to the markets they serve, and we’re investing in these today so we can lead in service and innovation for our listed companies as their needs grow.
Lynn and her team are continually finding ways to combine data, technology and connectivity to offer customers a complete, consolidated view of the markets they’re in and to help them meet increased reporting and independent valuation requirements. A couple of core areas of focus right now include our index services, continuous evaluated pricing for fixed income products and developing accurate ways to measure liquidity in fixed income markets. We’ve already made headway in these areas with the recent launch of the ICE U.S. Treasury Series, which are being used by BlackRock as the benchmarks for four of their Treasury ETF products.
We’re also combining our diverse suite of connectivity solutions, which includes SFTI and 7ticks. And we are integrating data feeds into our desktop and tool solutions to deliver increased data to customers more comprehensively and efficiently.
And, finally, what’s on the horizon for ICE?
We’ll continue to expand to meet constantly changing dynamics in the global marketplace. Regulation, technology, and market dynamics are changing at a rapid pace, and we intend to lead within this evolutionary process. We’ve been willing to change and adapt quickly; we’ve moved from a 100% bilateral energy trading platform to a diverse operator of data and listings, commodity and financial markets, and clearing and technology infrastructure in just 15 years.
The pace of change continues to accelerate, not just in our industry - but across all sectors. We’re excited to see what the next 15 years bring, how the companies that we work with evolve and how we can help them manage risk, raise capital and grow.