Speaker 1:
From the Library of the New York Stock Exchange at the corner of Wall and Broad Street in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership and vision and global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism, right here right now at the NYSE and at ICE's exchanges and clearing houses around the world. And now welcome Inside the ICE House, here's your host Josh King of Intercontinental Exchange.
Josh King:
So let's paint a picture. 20 years ago, this coming Sunday, May 10th, 2000, a handful of people who'd spent three full years working on a plan finally incorporate and launch a concern called Intercontinental Exchange. A little more than five years after that November 1, 2005, with just a few hundred folks in the business, the entrepreneurs do their initial public offering on the New York Stock Exchange, NYSE ticker symbol ICE, share price 26 bucks. They raised 416 million that day a market cap, wait for it, $1.4 billion. Now, skip ahead 20 years, that handful of folks, it's now nearly 6000 people spread across 35 offices around the world, from their first idea making transparent the energy markets that had been opaque in the age of Enron to where they sit now, running 12 commodity and equity exchanges around the world, six clearing houses, a data services business, and all sorts of trading tools, technologies and platforms atop that stack.
Josh King:
And oh, by the way, a budding enterprise for digitizing mortgages and another one for buying, selling, storing and spending the vast array of digital assets that we all have from frequent flyer miles to endgame tokens to Bitcoin. And the market cap at last check $48.6 billion, not bad for 20 years work. But here's the problem, those 6000 people spread across their 35 offices, they're now all sitting at home social distancing to stop the spread of the Coronavirus. They've been that way for weeks connected by a computer and a video network deployed on a massive scale. I should know, I'm one of those folks and since March 23rd, I've been spending a lot of time looking at my colleagues in their home offices, kitchens and living rooms and I've met their sons, daughters, cats and dogs in the process. And only just now the first glimmers of opening back up are beginning to emerge, our people in Beijing, Tel Aviv, Houston, and our Arca Options trading floor in San Francisco, letting in a few folks on a staggered schedule. The Atlanta headquarters it plans to restart at around 25% capacity sometime soon all socially distanced, the regular routine around the coffee break area and the cafeteria suspended at least for now.
Josh King:
But through it all, through a massive uptick and volumes across just about every asset class through an unprecedented glut of supply and diminished demand in the oil markets, the company keeps on ticking. ICE announced its first quarter 2020 earnings last Thursday, net revenues $1.6 billion, up 23% year over year, driven by record trading and clearing revenues of 883 million and record data services revenues of 564 million. So in many ways the company was built for times like these, serving the customers who are trying to make sense of the viciously volatile market and hedge against further volatility in the weeks and months ahead. In a minute, the man who originally conceived such an audacious thought, the founder, chairman and CEO of Intercontinental Exchange, Jeff Sprecher, on how a vision he had 20 years ago is delivering for customers and shareholders today, how he and his team of 6000 people are bearing up under extraordinary market conditions and personal circumstances and how they're giving back. That's right after this.
Speaker 1:
And now a word from Ron Delia, CEO of Amcor, NYSE ticker AMCR.
Ron Delia:
Today is a really big day for Amcor, we've been around for 160 years. After so much time it takes the passion and dedication of our people around the world, and it takes resilience and we have lots of that at Amcor. Our aspiration is to be the leading global packaging company and that means winning for our customers, our people, our investors and the environment. We have a big pledge around sustainability, we really hope to change the world as we look forward. Amcor now listed on the New York Stock Exchange.
Josh King:
So if you've been a regular listener of the show back in its early days, you heard a long conversation with Jeff Sprecher about ICE's formative years. That was episode 14, back in April 2018, and two years is a long enough gap and there's been enough change at the company none more so than in the past eight weeks to check in with Jeff again. If you want the full backstory, go back and listen to that episode. Today we're going to be focusing on the more recent history, especially as ICE and its customers and all of you listening are dealing with COVID-19. Suffice to say that Jeff's an entrepreneur's entrepreneur, a Midwestern born and bred engineer, graduate of the University of Wisconsin with an MBA from Pepperdine Graziadio Business School, Jeff and his colleagues started the expansion of their original playbook, with the 2001 acquisition of the International Petroleum Exchange, then the 2007 purchase of the New York Board of Trade, and the 2013 deal that brought the iconic New York Stock Exchange under its roof. That was followed two years later by adding Interactive Data Corporation to create the crux of that trading and data powerhouse that ICE is today dispersed, as I said before, into about 6000 home offices around the world, including this one in the Catskills of Upstate New York, where I'm speaking to Jeff today. Welcome Jeff Sprecher Inside the Ice House.
Jeff Sprecher:
Thank you, Josh.
Josh King:
How's the remote CEO suite in the Atlanta suburbs treating you? How are you dealing with all this?
Jeff Sprecher:
Well, it's interesting, because when you're company becomes very large, one of the most important things that I think that management can do is drive a common culture because you can't touch every colleague, and it's very, very hard to drive culture when everybody's sitting individually in their own homes. And we have to find ways of trying to stay connected with video and audio, but it's not quite the same, and culture to me is something that is a bit organic, it comes by leading by example. And in order to lead by example, you somewhat have to be seen, so this is a very interesting time to try to think about how we have common culture.
Josh King:
So you were not seen but heard on last Thursday's earnings call. Congratulations on 20 years and the last quarter of earnings, 1.6 billion revenue consolidated net income, 650 million less transaction based expenses. I kind of wonder, Jeff, do you remember what ICE's net income was in your first full quarter of operation back in 2000?
Jeff Sprecher:
I don't. I will tell you what I do remember is the first day that we did a million dollars in one day sales, and that followed 9/11. And was a pretty monumental day for us, and today that's routine.
Josh King:
At what point where you're able to look at your partner, Chuck Vice in the eye and say, "Hey, I think we got a viable business here."? What were the signs and what were the sort of existential moments when you sort of questioned whether that was even true?
Jeff Sprecher:
There was a moment on New Year's of year 2000. If you recall that for those that are old enough to recall that it was Y2K, there was tremendous fear that digital systems weren't going to work, we might not be able to get money out of our bank accounts and other issues leading into that. There was a lot of conversation around January 1st of year 2000 about what was going to be different. And I have this distinct recollection of being alone that evening on New Year's Eve on the 31st thinking things have to be different in year 2000 for this little company, and I shared that with my colleague, Chuck Vice and my other colleagues and said, "Let's just make something happen." It almost doesn't matter what, but this is the year that digital systems are at the forefront and we're building a digital system, and we need to do some things to make something happen. And literally, within 60 days, we had had meetings after 107 customer meetings where we had asked customers whether they would want to invest or use the company services. We met two companies, Morgan Stanley and Goldman Sachs, both of whom said we like what you all are doing. And it was that validation in early 2000 that allowed us to say, "I think this is going to be a boy or a girl."
Josh King:
So in some cases, I think... You know I saw a conversation with you in which back in 2000 I mean, I was struggling with whether I would buy a book on Amazon or go to the bookstore, you had to convince Goldman Sachs and Morgan Stanley to make million dollar bets is basically an e-commerce transaction, what got them over the line and said, "We'll go for this"?
Jeff Sprecher:
I have a theory, which is just a theory that is in my head, and has not been validated by them. But I think people in the energy business were witnessing the rise of Enron, the fact that Enron had created a digital platform, which by the way, they may have stolen the idea from us because we had been spending a fair amount of time with Enron demonstrating our platform as we were building it. But I think Wall Street's saw this Enron platform called Enron Online, and said, "Wow, this could be really successful. We don't necessarily want Enron to be at the center of the universe, and we need to create some kind of competitor to it." Those are people with a lot of vision, this is well before Enron collapsed or there was any specter that Enron may have had fraud inside of it. I think it was just the need by some very smart people to say we want competition.
Josh King:
As you pass two full decades at the helm this coming Sunday, what are your thoughts looking back at that?
Jeff Sprecher:
It's interesting, because you mentioned in the introduction that I was at Pepperdine University, and I was living in Southern California, and I actually was running another company that I co-founded with a colleague that I met at school. It was a successful company, so ICE was a side gig for me, and we started ICE in Atlanta, Georgia. I had a three hour time difference between Southern California and Atlanta so I would get up early, and get on the telephone. That was before video conferencing and was before mobile phones, and I would get on a landline telephone, and do conference calls and meetings in the same way that all professionals that we know are doing them today, which was from my bedroom and from my home desk. And so in a weird way we've come full circle.
Josh King:
I was thinking that exact thing if ICE was a side gig then and you were getting up at 4:00 or 5:00 to do East Coast calls. We spoke with Kevin O'Leary a few weeks ago for this show, sequestered himself in his condo in Miami, he talked about how his self quarantine has allowed him time arbitrage better than he ever has. How have your routines changed over the past eight weeks?
Jeff Sprecher:
They haven't changed a lot maybe because I'm not a millennial, I'm an older guy, and somewhat set in my ways in terms of getting up and getting going and working hard and working many, many hours a day. It is definitely more difficult to run a business with audio and video as opposed to being able to just grab a colleague. There's so much that comes from just watching as you walk around the halls of a corporation, you get a sense of who's engaged and where are we going and how does it feel? There's a feel. In my mind I really am not a public company CEO, I'm a small business entrepreneur, and just kind of get a feel for the company much more so than when I read the reports. Usually when I read reports, and we as a Fortune 500 company generate a lot of reports, but there's very little on those reports that I generally don't already know by touching people in the company. And so the biggest change, the biggest difference right now is that that is a more forced function when you're doing it remotely as opposed to the organic way that human interaction tends to happen through various offices.
Josh King:
I now you're itching to get back to the office and you held your earnings call last week at headquarters, socially distanced, of course with your President Ben Jackson and your CFO Scott Hill, what was like to finally be in the same room again with colleagues after quite some time?
Jeff Sprecher:
Well, it was odd because we have a large corporate multi-floor office building that was completely silent and empty and the lights were out, and we all four of us walked in and took four corners of a very large conference room table with a speakerphone in the middle of it. And so it was a little bit eerie, I would say. We had great earnings. I mean, we're in the enviable position of managing risk is really what our basic product is helping people to manage risk and the world is full of risk right now, so we had the best quarter in our history. It was a little bit eerie doing that in a office where tumbleweeds were rolling down the halls.
Josh King:
Best quarter of our history in these such extraordinary circumstances. Jeff, you have this prodigious method of siphoning news reports from who knows how many alert systems. We all get these FYIs from you, obscure headlines at all hours of the day. I looked at a news report last night from January 6th of this year, headline was Mysterious Pneumonia Outbreak Sickens Dozens in China. When did the Coronavirus first get on your radar screen?
Jeff Sprecher:
Well, I wasn't early on this, that's for sure. I like most people were listening to the daily updates that were being provided by the government and by Dr. Fauci and the team, and it did feel like it was not a Western problem. Now, our company has offices in Asia and we started to see real concern coming from employees in Asia, but interestingly Singapore, where we have a major outpost, was relatively confident that this was going to be pretty minor and contained, and so we didn't really feel concerned. Also, we could see that our business in Asia was doing well, and that our sales team continued to be able to make sales and meet targets and budgets, so it's a little surreal when one day the government, pretty much around the world said, "Hey, everybody, this is pretty serious, we all should go home and self quarantine."
Josh King:
So we all went home and self quarantined. Let's talk for a minute about how the company implemented its business continuity plans. You told me a while ago that you actually credit ICE's purchase of NYSE Euronext in 2013 Really as a galvanizing moment that prepared ice for what it's facing in 2020, why?
Jeff Sprecher:
When we bought the company, it was shortly after Hurricane Sandy really devastated the East Coast of the US. And during Hurricane Sandy, I was on a call that had hundreds and hundreds of people on it where a decision was made to close down all of Wall Street. At the center of that call was a conversation about the fact that the New York Stock Exchange really didn't have the ability to run its systems if the floor was closed, And there was really no way, if you recall those times that you could get people safely into the New York Stock Exchange. So there were other knock on impacts of that and other financial services companies that didn't have particularly good plans, and so there was a mutual decision just to close all markets. That has really stuck in our mind, and so when we bought the New York Stock Exchange, one of the first things we did was look at its continuity planning and we found that it was really lacking, it wasn't robust.
Jeff Sprecher:
It's not a continuity plan to say, "Hey, everybody should go home and take their cell phone with them and we'll figure it out." And so we embarked on a massive upgrade of systems around the New York Stock Exchange that not only were better and easier to manage, and what have you, but also had a lot of redundancy in them and the ability to operate them from other locations. While we did that, ICE has many exchanges around the world and many clearinghouses and data feeds and all kinds of other technology, and we just said to ourselves, well, we shouldn't come up with a plan just for the New York Stock Exchange. I mean, if we were going to go through the effort of thinking through all of the possibilities, we should apply it to the entire company. Interestingly, a group of my colleagues set up a pandemic response plan, which was nice to have something on the shelf to grab and start with when we started to see the real possibility that we were going to be needing to close the floor of the New York Stock Exchange and also to send people around the world home.
Josh King:
So when the closure of the floor happened, the Bell told for the last time in 228 years on March 20th over an active trading floor temporarily, there has since been a lot of speculation given how well the NYSE's held up since all electronic trading was initiated that following Monday, March 23rd, that "Hey, why reopen at all?" You said on the earnings call, and I'm going to quote that "our data shows that market participants save millions of dollars a day when the floor is operating thanks to tighter spreads and more efficient auction price discovery." Do you want to break that down for our listeners?
Jeff Sprecher:
Sure. We've been arguing for years that we think that combination of human judgment on the New York Stock Exchange trading floor combined with really excellent, highly scalable technology that handles the bulk of the transactions is a better model. We have tried to have data to show that and to test that, but until you actually close the floor, there was no way to have actual empirical data. It was an experiment that we thought would result in showing the strong efficacy of the floor but never were able to actually gather the data. Well now we have the data, and we can see that a combination of this electronic platform which can clearly handle the volume, but when it's coupled with humans, we can see that we get tighter bid offer spreads and we get better results to find the final closing price, which increasingly is becoming important because that final closing price of a stock is used in calculating a lot of indices and other inputs into exchange traded funds and derivative products that exist around equity trading.
Josh King:
So if that's true and stocks will trade better with the human element involved, as we're talking this morning, the NYSE Arca Options trading floor in San Francisco, is reopening on a limited basis, minimal staffing, broad protections in place. Jeff, what will it take to get the main NYSE trading floor at 11 Wall reopened?
Jeff Sprecher:
I don't know to be honest with you. We have a lot of experts, medical experts and others advising us. We're taking a look at the whole physical plan to say what are the physical changes that we can make, and where do the medical professionals think that we should position people. But it is an interesting phenomena that what we're trying to say is that a community of people that can communicate with each other, coupled with technology does a better job of a community of people that are sitting at home on telephones and video. And so we do need to find a way to get these people back. I mean, we hope to find a way to get these people back so that they can communicate with each other face to face, but still do what is in their best interest, in our best interest from a health and safety standpoint.
Josh King:
Beyond our specific company, Jeff, you're in touch with CEOs of all stripes who are dealing with similar circumstances, many talk about maybe carrying a lighter real estate footprint going forward doing things differently in the future than they've done in the past, have you sort of mused on some of these issues? And how do you think the world will be different on the other side of this?
Jeff Sprecher:
Yes, I mused on it. I don't have a good answer because I am a strong advocate that human interaction can foster ideas and infrastructure that is very, very hard to replicate when we're all dispersed, and so I'm not ready to give that up yet. I can just tell you so many times when somebody has made an offhanded comment, or when we've been in a room to have a thinking session and we have a fight, and we rip ideas apart and put them back together. There's just something about a group of people that are respectful, that can listen to each other, and chide each other and push each other that is very, very hard to do on video. And so while you can maintain a company, which is largely what people are doing today remotely, I don't know how you really get this special sauce that a group of people can bring together if you can't keep them together.
Jeff Sprecher:
You know in a startup, and most entrepreneurs have experienced just eating, sleeping and drinking the company with a group of people and spending nights in the office and ordering pizzas, and missing meals and having this tremendous collaborative energy to try to drive an idea forward, it doesn't really work. My colleagues are having Friday afternoon cocktail, get togethers and pizza parties and other things, and I've attended some of them, but they tend to have a finite beginning and a finite end whereas when you're building ideas, and you have people with emotion and passion about things, time goes out the window, it doesn't lend itself to clicking on a link that's on your calendar. So I say that to you because I think there are a lot of people that will ultimately say we do need as humans to gather. I'm an American, and I think, American ingenuity just demands that we find ways of getting together to have those kinds of interfaces, which you have to do by gathering at some point.
Josh King:
I mean, you've got a such a unique, more insular community of CEOs of very different color in Metro Atlanta where you call home, so wondering if you have checked in with your fellow chamber mates at best chain of Delta Craig Menear of Home Depot, James Quincy of Coca Cola, David Abney of UPS. I mean, these people are all dealing with very different challenges in terms of large workforces, the challenges of social distancing that we've been able to bridge through technology and video. A lot of these people have to really be on the frontlines with a lot of people every day in your particular community.
Jeff Sprecher:
Yeah, and I would tell you that the overarching number one thing that I hear when I talk to colleagues is protecting the employees, making sure that the health and safety of employees comes first. So to a certain degree, everybody I'm talking to says the business has to take us a backseat. You and I just had a conversation about how the business goes forward, but before we can get there, everybody that I'm talking to says the number one thing we can do is make sure that we protect people. And that's a little bit at odds with in many businesses growing, and so there's going to be an inflection point where we as a society and business leaders and employees are going to have to figure out whether we're going to have to take a calculated risk and how we take the baby steps to move into these calculated risks.
Jeff Sprecher:
It's not a fun thought if there's no vaccine or no efficate treatment, then what are we going to base these baby steps on. So none of us have the answer, most people have figured out a way to try to maintain large businesses that have large balance sheets. Small businesses are really hurting I know from also a lot of conversations that I've been a party to with small business people that they just don't have a mechanism to do what you and I are talking about on an audio from our homes, so we really feel for them, and we just pray that the scientists, these drug companies and others that are working on treatments are making the headway that we all hope that they're making.
Josh King:
I mean, for whether large balance sheet or small balance sheet, life does go on, business goes on for as long as possible or through this. Listening to Scott Hill on the earnings call last week, in our energy markets, geopolitical events, and building open interest throughout 2019 combined to produce these January and February volumes that together were up 40% year over year, each of those contracts traded represents one of these customers big balance sheet, small balance sheet making a move to hedge against the future that they're seeing. We're always mindful of the pain and stress our customers are under, what are you hearing from them both in terms of how they're holding up and how our platforms are underpinning their strategies?
Jeff Sprecher:
Well, as I mentioned, ICE is in the business of providing tools to help people manage risk, so we've been inundated with interest, and obviously the numbers you just talked about show that we were having a record year in January and February before the real fallout of markets in March, which allowed us to even have a higher volumes and earnings. So we were already in a very good pace for 2020, but now, with so many people trying to manage risk and figure out where to position themselves and how to reposition themselves, our volumes are very, very high. What people are talking to us about to specifically answer your question is that how do I manage my risk when my risk management team is working from home? How do I get access to tools and information? And how do I syndicate that through my employee pool easily, effectively, so that we can continue to overcome and manage the risk that their firms are having in a distributed way? And the answer to that generally is through technology.
Jeff Sprecher:
We are shining really well, because we had spent a lot of time and energy figuring out ways of distributing access to our products and not wedded ourselves to any one channel and alternative channels are being used. We actually created a business continuity planning sales plan that I mentioned on the earnings call that we put into action to help people that we knew were wedded to hard wired facilities in their corporate offices. And a lot of people have availed themselves of that, and we've been giving a lot of it away for free and just trying to help people get through the hump here.
Jeff Sprecher:
I really do believe that these are times when good people can shine when you can really extend your hand and help somebody solve a problem. I think, as an entrepreneur, a good time to start a business is actually in a time of crisis, which is for many entrepreneurs counterintuitive. We've just come through a 10 year cycle of people building unicorn companies and would say now the best time to build a company is when things are going well, but personally, I think the best time for an average person to start and build a company is in a time of crisis because most of us are looking for new solutions and new answers and have a more open mind than when things are going swimmingly well.
Josh King:
I mean, Airbnb came out of the financial crisis of 2008 and the collapse of the housing market and people were wondering, this thing that I'm holding this mortgage, how can I get any kind of value out of it?
Jeff Sprecher:
Yeah, and you mentioned again, in the introduction that we've been spending a lot of time building digital mortgage solutions for Americans. Red will recognize that when you buy a home or refinance a home you tend to at some point have to go to an office somewhere to sign documents, and the money movement and what have you takes a fair amount of time. And part of that is that there's a lot of shuffling of paper that goes on in establishing title and looking at your ability to pay, and then actually signing the lending documents, so we've been working on tools that would allow that to all be done digitally from people's homes and have a digital closing and working with many states that require a physical notary, for example, to sign a paper document that's written into law, and so how do we overcome some of those things? So these are really interesting opportunities that we see to help streamline the US mortgage space that a lot of people are interested in.
Josh King:
And you've been signaling that quarter after quarter. You initially had 50% of the company called MERS, And then you bought last year, Simplifile for e-recording between counties and realtors and agents. Talking about entrepreneurs sort of having their mind focused in times of crisis, have you been talking to Chris McEntee with increasing frequency now and to think like this is really focusing the mind?
Jeff Sprecher:
You know what's interesting about MERS, it's a terrible name M-E-R-S. It stands for the Mortgage Electronic Registry Service, which is a much better name. I had learned about MERS through a colleague. I had a friend who I respected who worked in financial services, and I told this friend probably in 15 years ago that I thought the mortgage industry just seemed so analog in a world that was increasingly going digital, and he said to me, "Have you ever looked at MERS?" And I said, "I've never even heard of MERS. I don't even know what that is." And so I started looking at it, and it was a cooperative, had 5000 members including most mortgage lenders and the mortgage industry group and others, and I got in touch with them and got to know the management and started making inquiries about whether or not it's a company that could ever become a for-profit independently owned company. And then the 2008 and 2009 financial crisis hit that you mentioned.
Jeff Sprecher:
MERS is the company that was doing robo-signing of mortgages, if you recall that, and there were 1000s and 1000s of homeowners that were being foreclosed on and the court system wanted to see the original documents, and instead they were being presented with these robo-signed facsimiles copies of the original documents. MERS really got into trouble and had tens of thousands of individual lawsuits against it, so it was a different financial crisis that really caused us to do what I mentioned to which is to pivot into a new business. We stepped in and acquired MERS, and we do what we like to do, which is build a better technology and fix that so that in the future, individual homeowners will have certainty as to where their documents are and who has them and where are the original signatures. And that's worked out very well for us, so it's really not this crisis that... Well, this crisis is accelerating the business, division came in the last one. This is the crisis where you have to think about five or 10 years ahead, what are we seeing that's going to be different? What are the green shoots that are that are popping up today that we really won't see as for us for another decade?
Josh King:
I mean, and this crisis is typified by some analysts in the oil sector who when the year turned into 2020 from 2019 said maybe this is the year we get back to $100 a barrel oil again, and now it's in some places negative pricing in the WTI. But we had the king of the oil pundits Dan Yergin on the show last week. Last Thursday marked the expiry of the June contract for the Brent Crude contract. Ben Jackson dove deep into the differences between Brent and WTI in the earnings call, but now 19 years on from the time that you bought the International Petroleum Exchange, why does Brent remain so resilient?
Jeff Sprecher:
It remains resilient because Brent crude oil is crude oil that is put on super tankers, it never touches the shore. It's oil that's drilled at these deepwater derricks that are out in the ocean. It goes immediately onto ships, and so it can move anywhere in the world. So Brent crude oil represents the movement, the global oil infrastructure, and there are issues that come with trying to drill for oil in very, very difficult seaborne conditions. There are issues that come with trying to load tankers and move them around to various ports. And we're having a societal debate right now about moving away from oil as an energy source at the same time that many, many parts of the world have seen an emerging middle class that have never experienced the ability to own an automobile or drive a car or have an air conditioned home, and so there are demands being put on the global energy infrastructure. You have a lot of risk issues for people that are in that business that are trying to figure out how to allocate capital between day to day activity, and also what's happening in the long term.
Jeff Sprecher:
We talk a lot about Brent, because crude oil is indicative of it's flagship name, if you will, or idea for energy. But we have over 600 energy products that we actually list and trade, and some of the emerging ones are the clean fuels like natural gas or global emissions contracts and other non-oil energy contracts that are highly correlated to the way we all as humans are thinking about how we want to consume energy in the future. What is very interesting to me is that when we started the company, we had four energy contracts. And by the way, that really was reflective of the way the industry thought about energy. They thought about oil and natural gas and electricity, and they were kind of these independent things, and today, as you and I and other leaders around the world are thinking about what is the future of energy look like, there's a lot more demand for things that are not oil, but are part of that whole flagship of risk management that people are depending on, which is why the volumes for trading of oil continue to go up. For everybody that is buying it, there's somebody that thinks the price is going to go up, there's somebody who thinks that it's over and the price is going to go down.
Josh King:
So as we head into the break, Jeff, ICE has held up pretty well with these volumes that you're talking about as the first quarter results indicate records in every direction. You said you'd plan to go into this year and having your record year of course, but it's not what you planned to be quite so high, so as you're taking stock, you're also giving back. Last week, ICE announced $10 million in donations spread across the 35 cities where we have offices, what was your thought that went into this?
Jeff Sprecher:
Well, as soon as the market started to really become volatile, I mean, we knew from what happened after Enron collapsed, we knew what happened after 2008 and 2009, we knew what happened after Hurricane Sandy, that the business of risk management that we're in does very well. And we immediately started to think my god, we're going to do incredibly well at a moment in time when the world is doing incredibly poorly. I'm a strong believer that it's easy to give away somebody else's money. I've been on the boards of a number of charitable organizations, and everybody loves giving the money away, and nobody really enjoys trying to figure out how to raise the money. And so as a steward of shareholder capital, on the one hand, it's really not for us to give away our shareholders money, on the other hand, we knew something that our shareholders didn't know, which is that we were really going to have outsized profits as a result of these terrible market conditions.
Jeff Sprecher:
It just seemed incumbent that our shareholders would want us to acknowledge that we should do something, and so we went to all of our offices around the world and said, "Move quickly to locate areas of needs where people needed personal protection equipment, where schools needed access to digital platforms, where frontline workers needed help." And so right away in March as this was unfolding in the Western world, we said, "Let's make sure that our people know that we have capital available to put the work in their communities." It was very rewarding to have a broad based group of employees come up with ideas, and we gave money all around the world very quickly, very early in this crisis that I think made a big difference to a number of organizations. We wanted to tell our shareholders that on our earnings call that we felt that this was such an extraordinary situation, and we were in such an extraordinary positive earnings position that we really needed on their behalf to give back.
Josh King:
At the NYSC each day during the crisis, the opening and closing bells have continued to ring even as the trading floor has gone temporarily electronic, and instead of CEOs and their teams on that podium, what we've seen are health care workers, first responders, grocery clerks, package delivery people, electricity company linemen, ventilator makers and pharmaceutical researchers virtually ringing the bell all part of the ICE's gratitude acknowledgment efforts, how important has it been to feature these people in this time of crisis when normally that would be a hallowed place for a chairman or CEO to ring the bell?
Jeff Sprecher:
You know that bell podium is unbelievable in terms of its history, and the people that have stood on that bell podium and rang that iconic bell at the beginning and the ending of every trading day. Literally, every great world leader, every great entrepreneur has been in that building and has had the privilege of starting the global trading day, which is what that bell does. And so there are many, many heroes in the world that are not world leaders, or chief executive officers, and it's always fantastic to put them up there, they deserve a spot just like anyone else, that makes a fantastic contribution to our society.
Jeff Sprecher:
It was important to us that the bell continue to ring, you know? I mean, we could have done a Zoom video, I suppose, of us ringing a cow bell, but it's important that that bell ring, and it means that some of our security staff that is graciously been going in and standing inside the building to make sure that it's locked down and safe, because that building, unfortunately, is a terrorist target, so there are security people there and we've had them go up and ring the bell on in honor of these wonderful people. We asked the public at large to submit names, and we're getting all kinds of fantastic people to honor. If anybody's listening to this podcasts and you know somebody, check out our social media site, we'd love to hear about them.
Josh King:
Email me at [email protected]. When we come back with Jeff Sprecher, founder, chairman and CEO of Intercontinental Exchange, we dive deeper into still some of the things that have come to define the company after 20 years of operation, and some of the things that may yet define its trajectory over the next 20 years. That's right after this.
Speaker 1:
And now a word from Charles Goldman, CEO of AssetMark, NYSE ticker AMK
Charles Goldman:
AssetMark is in the business to help independent financial advisors serve investors, and we power that independent investor to do that work. We differentiate our platform on technology and on investments, but especially the service relationship that we have with our advisors. We chose the New York Stock Exchange at AssetMark because of the great routes that the New York Stock Exchange has, and we really appreciate the value brought to our IPO. AssetMark is listed on the New York Stock Exchange.
Josh King:
Back now, Jeff Sprecher, the founder, chairman and CEO of Intercontinental Exchange. Before the break, Jeff and I were reflecting on the company's performance over the first quarter, how some of its flagship platforms have evolved over time and how the business has adapted to working remotely. Jeff, in that long piece that Shawn Tully wrote about ICE back in 2018, it shows a picture of you not in your usual business suit but in a T-shirt and what looks like a lug wrench in your hands tweaking the settings of one of the antique cars in your collection. Then there's this Techrides TV show that you did back in 2017 driving along with Edwin Marcial talking in your '92 Porsche 911 out for a test drive, that's the Carrera Cup version.
Josh King:
In the show, you're telling Edwin that you got into cars after reading this interview with Mario Andretti in which he talked about what it took to be a winning racecar driver. Most people would say got to be brave, but mario said you've got to be smart and have a strategy. So I imagine, during the lockdown period, your hours in the garage might have seen a bit of an uptick, so has it given you more time to think about what it'll take to be smart and have a strategy in the months and years ahead?
Jeff Sprecher:
Well, first of all, let me go back and tell you that I disagree with Mario Andretti, I think you got to be brave to be a good racecar driver. I tried to be a racecar driver when I was a young person and I thought I was smart, and I thought I had a strategy and I was terrible. And I was beat by all kinds of people that are able to hold their foot down longer than I was when you go around a corner. But I do like mechanical things because I'm an engineer, and running a business as you're alluding to is just another mechanical thing in my mind. It's an energy that needs to have direction and be harnessed, and I think it's Newton's Third Law that says for every action, there's an equal and opposite reaction so it's easy to think about a company taking an action, but then if you're going to be honest and follow nature's laws, you need to think about them, what would the reaction be? And so most people tend to ignore that but that's typically where you get into problems.
Jeff Sprecher:
So I enjoy thinking about what action should we take and then what is the likely reaction to that, and how do we mitigate the reaction? I tell all entrepreneurs all the time that I've started a number of companies and I spend a long period of time thinking about what will go wrong, and then how will I unwind it, and then how will I pay the rent. And I have a better plan for failure than I do for success every time that I've started a company and every time we go into a new initiative, and that's really just Newton's Third Law. And so, I've been thinking a lot about what is our customer base look like? A company really, is there to serve customers. What does the customer base look like in this post crisis era? And what are their needs going to be, and how are they different than what they are today? And can you think about some needs that others aren't really focused on, so that you're not just another name in a crowd, which is a much harder business to run?
Jeff Sprecher:
And so, it'll be interesting to see how we all adapt going forward. Clearly there's going to be more work from home. I used to argue to my colleagues that it's not the same if you're working from home, but a lot of people are going to have a lot of evidence to refute me when I bring that up again, so we're clearly going to have more working from home. The notion of social distancing may be with us for many, many years even if we have cures and feel comfortable about this particular virus going forward. The notion of shaking hands, and hugging and how we embrace one another may be slightly different with people that were not strongly accustomed to. I think all that's gonna play into the human conventions of business, and I'm trying to think of the macro trends where the niche that risk management that Intercontinental Exchange is in could continue to move into the future.
Josh King:
Thinking about the customer, the future, and the action and reaction, and how you're trying to see around these corners, as I watched you drive that 911 around and actually looking around corners, I was thinking about how the cars of the future will be increasingly electric, increasingly driverless, we're transitioning to cleaner fuels and better technology. And I mean, talk about what we actually have now, are you seeing that reflected in the volumes for natural gas contracts like TTF and JKM?
Jeff Sprecher:
Yes, yes. I also will tell you that I wear a mechanical watch that you have to wind, which today you don't even need a watch, most of us carry some kind of mobile device you can look down at and see the time. But I also think there are in times of great complexity, there are comfort taken in things of great simplicity, so we're clearly going to go into an era of great complexity, more digitization, more technology to do business together. I also think there'll be a thirst for simplicity, kind of like an old Porsche that you can actually work on in your driveway and understand how it runs.
Josh King:
So back in the last quarter, the company put up good numbers, but looking at the fourth quarter, it was overshadowed somewhat by this leak suggesting that ICE had designed and potentially acquiring eBay. You've always had a reputation for zigging while others were zag, and there's been a lot of zagging in the last few years with the London Stock Exchange Group buying Refinitiv, and then the Hong Kong Stock Exchange turning around and trying to buy LSE. So if not a transformative deal like eBay, how else do you use zig in the months to come?
Jeff Sprecher:
Well, I can't actually answer that because I'm not allowed to as a public company executive to give any kind of forward guidance or look or what have you. But I think, the fact that we look at things that are not obvious is part of the culture of the company. Most of those get rejected, by the way. You know when you look at something that's really not obvious, you find there's a reason that it's not obvious, a negative reason that it's not obvious and reject it. But I think you got to go through the process of really understanding your limitations and what you do well as a company, and only then through failure or even on a pro forma basis rejecting something because you feel like you're likely to fail, can you understand your strengths? And that process of examination is really good I think for a company, particularly if you're honest.
Jeff Sprecher:
You mentioned in the introduction that I went to business school, and I have very little recollection of the actual books that I read and what I learned, but I have a very strong recollection of the fact that professor there said that good companies and good marriages and good social interactions have very good conflict resolution. Companies that avoid conflict can never really test their limits in my mind, and so going through this process of examining where we should go and should we acquire somebody, and how would we do it, and could we pull it off with a group of people, and allowing conflict to rise in that and then resolving whether or not the idea has merit or not, is I think, a really good exercise for companies. So I hope that when I'm no longer hear that one of the cultural things that survives, even if it's on video calls and conference calls is the ability to test your limits and have an honest feedback loop about it and have some conflict and resolve that.
Josh King:
So one of the areas where you actually did pull it off looking slightly in the rearview mirror, I mean, you bought something and strived to make it better as data services, Jeff. You bought IDC for 5.2 billion in 2015. In the recent earnings call, you spoke about how we couple our technology to over 200 human evaluators, the vast majority of whom are former traders or portfolio managers with years of market experience, so even in data, like the stock exchange floor, a flight to quality involves going beyond the machines to tap human judgment.
Jeff Sprecher:
Yes, correct. Again, we come up with prices on three million hard to price instruments every day around the world. So some debt in Liechtenstein, for example, that the owner needs to know what is this worth today, and we have tremendous amount of computing power that we use algorithms to calculate things like that, but it's human judgment around those kinds of calculations is really important. The feedback and the input that a knowledgeable person can look at the computer answer and then think about it in the context of a human brain, and ask themselves, "Does that answer make sense?" And so we, in many, many cases where we do complex things want to make sure that there's strong human oversight, particularly by well informed, knowledgeable people that can put answers into context.
Jeff Sprecher:
That happens in our data business, it happens... You know we make regulatory filings, we make a lot of information public, and so you always want smart, good people to take a look at what the computer is suggesting. We rely a lot on technology. I find myself pulling out my mobile device to do simple math that I learned to do in high school, and I'm just too lazy, but every once while it's good to do the math in your head just to remind yourself that you're capable of doing it and to keep yourself at the top of your game.
Josh King:
A lot's been written about how bond ETFs will fare as a result of the Coronavirus, but that hasn't stopped ice from innovating ETF Hub, which creates a more standardized and simplified process for ETF creation and redemption, spawn just last October but during the first quarter, Jeff over $136 billion in notional value processed over the hub. And in March alone, the authorized participants, those who used it processed a record 87 billion in notional value through the platform compared to 27 billion in February, which is an increase of about over 200%. Are you pleased with the progress that you're making here?
Jeff Sprecher:
We are. It's hard to launch a new product in the middle of a crisis, but this particular product has a lot of capacity and capability to help people that are in the middle of the crisis. And so we've been having a lot of virtual meetings with customers and potential customers on expanding that particular platform and interfacing with that platform which is not easy. It's not easy. One limitation that I mentioned earlier is I think you can maintain a business with work from home, it's very, very hard, I think to launch new products and new businesses that are highly collaborative when you're not together. But in this case, we've seen a lot of interest because the ETF Hub just solves a problem that has been exacerbated by the market reaction around this Coronavirus. Again, we look like we were smart and at the right place at the right time, but there's an element of luck the business. Usually you have to make your own luck, but nonetheless, there is luck. And this particular platform was already moving forward and a lot of interest in it, but I can tell you that interest is accelerated as a result of the needs that some of our clients have.
Josh King:
I mean, maybe some luck, but so much teamwork, hard work, perseverance. As you said earlier, being able to get in room and scrap with someone else and come up with a good solution because of this interplay that you have with these people that you've worked with for so long and there are so many transitions in this extraordinary year, and we're only a third of the way through it. One of them involves the person who has been with you since the very beginning of ICE 20 years ago, those days when you had to rub two nickels together to pay the rent and squabbled over the extravagance in a three hole punch. I'm talking about Chuck Vice, your partner and vice chairman, who's going to be feted at a gala retirement gathering, but that too will probably be on hold until we're actually allowed to gather together at all. So as we finish this two year check in on the evolving story of ICE, what might you have said to Chuck, as he bids farewell to the company that he helped launch two decades ago?
Jeff Sprecher:
Well, most of us don't believe that he's actually even going to be gone because he's one of the hardest working people I've ever met, and his personality just doesn't let him go off on unfinished business. And in any company, and in our company, there's a lot of unfinished business so we all kind of think that he'll be in our orbit, and we pray and hope so. He's agreed to stay on as a consultant, but he's very much my partner. He doesn't get the credit that I get because I'm more of the public face. Companies of our success and scale are not one person companies, it's a collaborative team and he's been an unbelievable contributor to this company throughout its evolution. It's not easy to evolve from a startup to a large corporation, there's a lot of change that goes on. It becomes more bureaucratic, it becomes more hierarchical. It just has to in order to deal with large groups of people and to make sure that people are treated well and have opportunity and stay engaged, and he helped me very much with that transition, and the two of us together have had been a fantastic team.
Jeff Sprecher:
I will tell you that for years what Chuck and I have been working on is our culture, trying to figure out exactly what made us so successful and how do we enshrine that inside the company so that the company is bigger than any one individual including Chuck or I. And he's done a tremendous job of pushing down his thought and his leadership to the team that was underneath him, and preparing them for the day that he was going to leave. We've been talking about him leaving for probably, maybe a decade now. Anyway, it's been pretty well seamless but that that is a testament to him and the people that he mentored, and the culture that he built inside our organization.
Josh King:
You're an engineer, your company has been re engineered half a dozen times or more since it was founded in 2000. I remember reading the transcript of your investor day in 2017 when I was getting ready to join the company, and you compared ICE, I think to a television cable business where everyone could get the channels they want for the programming they want. It was something like that, but I couldn't find this transcript last night. Then last quarter, perhaps getting a little reflective, you said and I quote, "When I bought this company, it was called The Continental Power Exchange, I decided to call it Intercontinental because I thought being continental was too limiting, and I took the word power out of it because I thought just focusing on power was too limiting, and so we end up with the name intercontinental exchange. I swear if I was starting this company today, I would probably call it the Intercontinental Massively Scalable Network and Database Company because that's what we are. I wanted to see if Mika could get these T-shirts made up with the Intercontinental Massively Scalable Network and Database Company on it, but I'd probably take up a whole sweatsuit top and bottom."
Jeff Sprecher:
Yeah.
Josh King:
But 20 years on from CPE, does the name The Intercontinental Massively Scalable Network and Database Company get re-engineered again, or just more massively scalable?
Jeff Sprecher:
It's a good question. The very first day that I bought Continental Power Exchange, a colleague of mine, Edwin Marcial, who you mentioned that rode with me in my 1992 Porsche came into my office and said, "We are using an object oriented database and we all want to use a relational database." And I said to him, "I don't even know what a database is. I wouldn't know the difference between the two of them." He came to me also and said that we're programming in C++ and they wanted to program in Java, and the third demand he had was that the company needed to embrace the internet. I told him I didn't know C++ or Java, I don't even know the difference, still don't today. I didn't know what a database was. What I did know was that people that are in the electric utility business would not use the internet very easily. He said he would quit if we didn't use the internet, and so I relented, and he was right and I was wrong. Another example of good conflict resolution, which is he was smarter than me and I went with his gut instinct.
Jeff Sprecher:
But in any event, to answer your question, specifically, you have to ask yourself, is there going to be such thing as a database in the world in the future? The allure of Bitcoin is this notion of having a completely distributed information system that is essentially a database that resides everywhere and nowhere, and so there may not be such a thing as a massively scalable database. It may be like me saying that I had a early stage computer that can barely keep up with what a calculator does today. That wouldn't offend me, if what I think we are today is not what we are in the future, I think companies need to evolve, great companies continue to evolve and find ways of serving customer needs that are very different than what their predecessors did, and that's important to me.
Jeff Sprecher:
Cannibalizing your own business and putting yourself out of business with new ideas is an important part of keeping a company growing and fresh. I really don't know how to manage a company that isn't growing. Part of managing a growing company is like the duck with your legs just moving very quickly underneath, and I wouldn't really know how to float around, that it's not my skill set and those that surround me. So it's important that we continue to find a way to put ourselves out of business with something that's better, faster and cheaper,
Josh King:
Better, faster, cheaper. I won't wait another 20 years to check in to see how that story ends, Jeff, but maybe we'll get together in 24 more months or so and check in on how ICE is doing in 2022.
Jeff Sprecher:
I hope we have a very different story, because then it will mean that we've continued to be very successful.
Josh King:
Well, thank so much. It's been 20 extraordinary years and the ones ahead will certainly keep us on our toes. Thanks so much for joining us.
Jeff Sprecher:
Thank you, Josh.
Josh King:
That's our conversation for this week. Our guest was Jeff Sprecher, founder, chairman and CEO of Intercontinental Exchange, this Sunday, 20 years old. If you liked what you heard, please rate us on iTunes so other folks know where to find us, and if you've got a comment or a question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us at @ICEHousePodcast. Our show is produced by Pete Asch and Ian Wolf. I'm Josh King, your host signing off from the remote library of the New York Stock Exchange in the Catskills of upstate New York. Thanks for listening, stay safe, socially distanced, and we'll talk to you next week.
Speaker 1:
The Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties, express or implied as to the accuracy or completeness of the information and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of [inaudible 01:03:03] clarity.
