Speaker 1:

From the library of the New York Stock Exchange at the corner of Wall and Broad streets 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 had plans, create jobs and harness the engine of capitalism. Right here, right now at the NYSE and at ICE's 12 exchanges and six clearing houses around the world. And now welcome Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.

Josh King:

This car climbed Mount Washington. It's a familiar bumper sticker to those driving the highways and byways of New England. And I have fond memories of taking the ride up in the family Caprice Classic back in the day. But climb that mountains 6,288 feet on my own power, I don't know if I have enough gas in the tank. The gym of New Hampshire's White Mountains, The highest peak in the Northeast is known not just for being the backdrop for the 1944 Bretton Woods Conference that created the International Monetary Fund, but also for its Arctic weather.

Josh King:

Once recording the highest measured wind speed ever not associated with tornadoes or cyclones clocking in at 231 miles per hour. Temperatures in winter are regularly sub-Zero the lowest coming in at minus 47 degrees Fahrenheit. I mean, 150 people have died on Mount Washington since 1849. Now 380 miles south of there in the heart of Midtown Manhattan is a more temperate setting. The perfect climate for hatching new futures contracts at Intercontinental Exchange come in early and the coffee roasting might smell stronger than usual.

Josh King:

Why? Well, our Midtown office is not just a home of ICE Futures US, it's also host to our coffee and cocoa grading room where the benchmark price for Arabica coffee known as the Coffee C contract is determined as well as the price for the world benchmark for the global cocoa market. At first glance, a spiraling peak in New Hampshire and a coffee grading room in New York City have little in common, rural versus urban and arid Arctic conditions versus the humid tropics where coffee and cocoa beans originate, but look closer and you'll find distinct similarities, teamwork, a skilled knowledge of terrain and product and using data and feedback to chart the best path forward.

Josh King:

Our guest today understands the complexities of climbing tall peaks and navigating the world of soft commodities. Trabue Bland, President of ICE Futures US joins me inside the ICE House to discuss the rapidly changing energy and environmental markets, the current landscape for trading and agricultural commodities and why sometimes you need to summit a mountain more than once. That's right after this.

Speaker 1:

And now a word from Planet Fitness, NYSE ticker, PLNT.

Speaker 3:

The Planet Fitness Teen Summer Challenge is on. Now through September 1st, teens ages 15 through 18 can work out at Planet Fitness totally free, no catches, no commitments. Come in and use tons of cardio and strength equipment on your own or sign up for one of our free team fitness training classes. Visit any Planet Fitness to sign up for your free summer membership. Under 18 must have a parent or guardian president sign up. Check out planetfitness.com to find a club near you. Participating locations only, independently owned and operated. See club for details.

Josh King:

New Yorkers are known for being a tough brash crowd, especially in the commodities pits of the trading floor back when they were packed shoulder to shoulder. Now Trabue Bland doesn't fit that stereotype. Originally from Natchez, Mississippi, Trabue hasn't lost his Southern charm. But make no mistake, as President of ICE Futures US, he's driven to win and leads an exchange offering a wide range of Futures contracts, including benchmarks in globally traded soft commodities, North American natural gas, power, equity indexes and FX.

Josh King:

A 12 year veteran vice, Jeff Sprecher called him down to Atlanta from Washington, D.C, where he was legal counsel to the chairman of the Commodities Futures Trading Commission. Now Commodities regulation wasn't his first rodeo in Washington, he cut his teeth working for the legendary Mississippi Senator, Thad Cochran before coming home to Ole Miss Law down in Oxford before the nation's Capitol came calling again. Trabue Bland, welcome Inside the ICE House.

Trabue Bland:

Thank you.

Josh King:

And we're going to talk about notches, the highest elevation and not just Mississippi is all of 217 feet above sea level. How did a swamp rat like you ever aspire to propel yourself 6,200 feet higher on human power?

Trabue Bland:

So the way it came together is I like to challenge myself. And a group of people from New York, they climb big mountains like Denali and Kilimanjaro. They use this as a training mission. And they invited me to go and climb with them. I mean, these were serious climbers and I had to spend four or five months training to climb mountain Washington. We did it in the winter and we had to use ice axes and crampons. It was a good warmup exercise for them. But at the end of it, I was completely gassed.

Josh King:

Had you been a climber before though?

Trabue Bland:

I had. In fact my wife and I used to spend, before we had kids, we used to actually go rock climbing. We spent our vacation, I remember one year at Seneca Rocks in West Virginia.

Josh King:

How did you get introduced to mountaineering generally?

Trabue Bland:

I had always been interested and probably part of it was because I grew up in a very flat area like you said, where the tallest thing that we had to climb were India mounts and go out with my parents or my grandparents and we'd go hike up these India mounts. And that was about it in the Mississippi heat. And then when I went to Washington Lee, I spent a lot of time going into mountains, probably too much time instead of studying, but I really, really enjoyed it. And it was one of the things that brought me back to Virginia was to spend much more time outside, much more time climbing mountains. And we've done a lot of that.

Josh King:

So a photo surfaced earlier this year on Twitter from FIA President, Walt Lukken, the caption read, "The only thing harder than getting a room at Boca 2019 is climbing Mount Washington in New Hampshire in sub-arctic temperatures. Way to go ICE Futures US Pres Trabue Blend. See you in Boca." You made it look easy, Trabue, but it's not always easy. I want to hear a little bit of TV from WPRI, a local TV affiliate in Providence, Rhode Island.

Speaker 5:

Two Rhode Islanders out for a hike on Mount Washington in New Hampshire Sunday.

Speaker 6:

We had a lot of things stacked against them at the very beginning of the day.

Speaker 5:

Around one o'clock, 27 year old, [Daniel Ruda 00:07:21] and 21 year old, [Christopher Petter Rudo 00:07:23] found themselves at the center of a mountain search. According to the New Hampshire Fish and Game Department, the hikers reported they were stuck somewhere on the terrain.

Speaker 6:

In the afternoon, we received a call through 911.

Speaker 5:

But finding where exactly that summer was was difficult. The Rhode Islanders told first responders they've never been on the trail before. Around 4:30 more people joined the rescue effort. At least one hiker expressed they were feeling symptoms of hypothermia.

Josh King:

So how did you stay safe on the mountain with all your training? Was there any hairy moments in this client?

Trabue Bland:

There were. In fact it was scary to hear that news report. I'd probably should have done some more investigation before I climbed. But what we did, one of the scariest parts was actually down climbing. And so when you down climb, we climbed down a route called Lion's Head. It's three or four different pitches and they're all almost straight down. And we had to use our ice axe and we had to kick in each step. And a couple of times kicking in, my step would fail and I'll just have the ice ax there. And that was definitely terrifying to me. And if you... That picture of me going up the mountain makes me look very confident. And if you just see me going down the mountain, I was definitely very worried.

Josh King:

As I think about other parts of mountain climbing that had been in the news this year, I think we saw pictures coming from the Everest climbing season that did not look at all like that solitary silhouette of you going up Mount Washington, but instead looked like a traffic jam over the George Washington Bridge at the height of rush hour. Have you talked to any of your climbing buddies about what that represented and whether these places that we do love to climb, the opportunities that you've had with your family to get back to nature are getting basically overcrowded with what climbing mountains like Everest represent?

Trabue Bland:

Yeah, we actually did. So on Everest, it's actually very accessible. It's the tallest mountain in the world. It's a 70 or $80,000 feet to go climb it. And there's a lot of fairly sketchy outfits that will take you up there. And you only have a three week window and they don't limit permits to my understanding. That's really led a lot more people who probably aren't capable of climbing that to go up Mount Everest. In relation to that, Denali is, you have to really hike in with your own gear. You have to pull a sled and it's not as accessible as Everest. And so you don't see as many people go up there. The people that I did this climb with, that's what they're training for.

Josh King:

So as we talked about earlier, you're from not just Mississippi. Originally Natchez was the center for cotton and sugarcane planters and a major hub for trade due to its location on the bank of the Mississippi River. Did you ever think that cotton and global trade would play a role in your career?

Trabue Bland:

When I worked for Senator Thad Cochran, I realized that cotton was easily one of the most international commodities that comes out of the United States. Cotton is produced in the United States. It's used or milled in Bangladesh or Pakistan or Vietnam. And then it's brought back into the United States in t-shirts or clothing. And so cotton itself is really dependent on the international markets and international trade flows.

Josh King:

As a kid growing up and looking at the cotton fields, how were you introduced to the commodity from the very beginning and thinking that this is what makes this state's economy grow, this is the power that Cochran gets when he's in Washington?

Trabue Bland:

That's right. When I saw it as a kid or at least as a teenager, my biggest goal was not to have to work out in a field. So everyone in Mississippi, your singular goal for your summer job is to find a place with air conditioning. So I avoided having to workout on a farm. I had friends who had to do that, but I got a job in a bank, which also helped me out for my current career.

Josh King:

The Bland family goes back to the founding of the country, Trabue. Richard Bland was a delegate to the Continental Congress, a Virginia statesman and a cousin of Thomas Jefferson. A relative of his also named Richard Bland was elected sheriff of Claiborne County, Mississippi near where you grow up in 1830. Are the Blands spread throughout the south?

Trabue Bland:

They are. That Bland is not related to me. My side of the Bland family comes from Texas. On my mother's side, the family goes back to the 1700s in Mississippi. And in fact, one of my first ancestors in Mississippi was, our ship surgeon, was basically left to die on the coast of Africa back in maybe 1800 or so. And he was taken in by a prince, an African prince. And what I think was the country of Jalan now, but it's in present day, Molly.

Trabue Bland:

This ancestor of mine went back to Natchez, Mississippi was walking down the street and saw the prince who had saved him in a slave market and was enslaved. And he worked his entire life to free this prince. And there's a couple of stories behind this. And Andrew Jackson got involved, I think, on the wrong side. So it's an interesting story.

Josh King:

How did that steer you? You've got your first job instead of working out in the field for the bank, but were you steered in any way by either your second generation or parents toward law and finance where you eventually ended up?

Trabue Bland:

Definitely. My grandfather was a lawyer, pretty prominent lawyer in Natchez. That was very influential to me. My dad also went to law school, but decided to go into real estate. But again, my main goal as a teenager was to avoid working outside in Mississippi, which is very important.

Josh King:

I mean, was that another reason why you left Mississippi and headed east to Lexington, Virginia to go to Washington and Lee? What drew you out of the state for college?

Trabue Bland:

Well, I went to a tiny high school. It's now closed. But I went to high school with Campbell Brown who's in the news anchor and Greg Iles, the Arthur, but it was 20 people per grade. And it was very, very important to me to get out of that very small community and go off. And the only way I could figure out how to do that was to go off to college.

Josh King:

You also attended Ole Miss Law and I see you in your tan poplin suit now and then and I think of Atticus Finch in the courtroom and make home Alabama. Did Harper Lee's depiction of the crusading lawyer inspire your direction?

Trabue Bland:

It did. My grandfather did all types of... Back then, you could practice law and do just about anything. And he did some criminal defense work. And it was very interesting to me. After I graduated from law school, the specialization had really taken over the practice of law. And so if you went in as a litigator, you're a litigator. If you went in as a corporate attorney, you're going to be a corporate attorney. And I always found that limiting. It would have been a lot more fun to do all the things that my grandfather did from criminal law to wilderness states. Back then, the lawyer was a very key part of the town. And that's not the case anymore. For better or for worse, we've moved away from the lawyer being the key part of every small towns fabric.

Josh King:

And whether or not you're working out in the cotton field, the tan poplin suit is going to come in handy on a hot summer day in Washington, D.C. Serving as an attorney for the CFTC, how did the lessons you learned there prepare you for your initial role at ICE as vice-president for regulation?

Trabue Bland:

That's a very interesting question. I liked working at the CFTC. I was in a division and clearing risk and then I went to enforcement and then I went up to a commissioner's office, which was Wall Luke and who became chairman. So I really got to work around the commission. It was a great, great introduction to the derivatives markets and the regulation of those markets. So not many people would have the experience that I did of both being an enforcement, but also knowing how clearing houses work, how exchanges work and how the US and other regulators regulate derivatives trading.

Josh King:

At some point, those who have made a career in Washington, D.C, whether they're part of the legislative branch or the executive branch or the judicial branch decide that it's time to spread your wings and get out of government and head more toward the private sector. When you joined ICE, Trabue, 2007, it was still very much in its startup phase. What drew you from the corridors of power at the CFTC and working in Washington to basically what is this startup company in commodities?

Trabue Bland:

Well, I was the fourth choice. The funny thing is is that they didn't interview everyone. So everyone who they had interviewed and accepted the job ended up turning it down because they didn't want to move to Atlanta. At least that's my understanding, but I was from Mississippi. I looked up ICE online and there wasn't that much back then on it. And I saw this article about Jeff's Brecker being a race car driver. Now it's like, that seems like a really cool guy and a fun guy to work with. And I had made no sanctions, whether ICE was going to be a three-year company and get bought out or is it going to be the rest of my career, but it seemed like a really exciting, innovative place to go work. And that has definitely proved to be the case.

Josh King:

Well, it could be exciting and innovative and maybe somewhat alluring to think that you're going to go to work for a guy who idols his time racing Porsches, but you've also got another story in which you stumbled upon Jeff and ICE's Vice-Chairman, Chuck Vice rolling up their sleeves and cleaning the office perhaps in a rather unlikely place to be in the office.

Trabue Bland:

So early on in my career at ICE, I walked into the men's restroom in Atlanta. And back then we were only two floors and Jeff was cleaning the restroom. I'm not kidding. And he was picking up all the paper towels. And I looked at him, I'm like, I said, "I think they have someone to do that for you." And he looked at me, he's like, "I'm the head of this company and someone has to do it. And I'm a shareholder." It was very instructional moment for me because after that, I realize we're all shareholders of this company and we all have a stake in how well it's going to do. I want to take that same passion, the passion that not only is he going to be CEO, but he'll roll up his sleeves and pick up the restroom if it's messy, that's the type of work ethic that I needed to bring in to work every day.

Josh King:

Talking about being a shareholder of the company, Jeff built ICE from basically a dollar to $50 billion in market cap in less than 20 years. You said that in those early years, the ICE team was fast and flexible as we could be as a company. Now constant change and growth go hand in hand. For example, you quickly found yourself needing to design a completely different legal structure then that which was in place when you started. Walking through how you set about to do that, whether your background in regulation came in handy.

Trabue Bland:

It definitely did and definitely my relationship to the CFTC. The CFTC was actually very helpful in helping ICE set up these regulation for the first time. So you have to remember that ICE, it owned an exchange in United States. We just purchased the New York Board of Trade. We owned the International Petroleum Exchange. This the first time our core OTC business was getting regulated.

Trabue Bland:

When we set it up, there was no template to do that. And we're only setting it up for part of our contracts and that being all of our contracts. But when we did that, we had to figure out what the position limits were going to be for contracts that never had positional limits. Could completely change the way that we traded our number one commodity at the time, which was Henry Hub. And-

Josh King:

Henry Hub is natural gas.

Trabue Bland:

... Henry Hub Natural Gas. And it was definitely very tough. We had a very short time window in order to do that. Had to rely on a lot of people in Atlanta who had never worked for a regulated market before. And we got together and we worked across a lot of different teams at the time, whether it's technology or RJ comings group, who probably knew the most about data reporting or the legal team. And I had to go and hire people who actually understood how to look at markets. And we had to go and buy software in order to make sure that we could look at what happened on a day-to-day basis. And we set it up from the ground up. And some of those structures, which I'm very proud of are still with ICE today.

Josh King:

Still with ICE today after so many acquisitions that the company has been through. Just after you joined ICE acquired Creditex group, a leader and innovator in the execution and processing of credit default swaps. I should also mention that this acquisition took place in June, 2008 just as the financial crisis was beginning to explode. What was important about the timing of that deal looking back at it today?

Trabue Bland:

It was absolutely amazing. ICE had the foresight to buy this. It was an asset class. We had no understanding of which was credit. When we started setting up ICE Trust, which was a forerunner of ICE Clear Credit, we didn't know anything about clearing CDS, we didn't know anything about banks, anything. And I remember one of the things is because we had to form ICE Trust as a bank, Johnathan Short and I actually went and looked up online how to form bank.

Trabue Bland:

And I contacted a friend of mine from the OCC who sent me a diagram of the bank regulatory section. He faxed it to me. This is how long ago it was. And it was pictures of the different regulators. And we just picked one, which at the time was New York State and the New York Fed, which is the way they wanted to regulate that. And it was very hard.

Trabue Bland:

We were talking to people that had never had to put up margin up before in a market where there was no price discovery where you had to say, well, if you're going to clear this and you're going to have the risk offsets and the capital efficiencies of clearing, we're going to have to take margin from you, which I know is a big shock. We're going to have to make these transparent. And there was some resistance, but leading into Dodd-Frank and ended up being a really good thing for the CDS market and probably saved the CDS market.

Josh King:

I mean, against the backdrop of the financial crisis, you're working closely with the federal reserve to serve as it's OTC derivatives clearing house. What was the process of designing and implementing the clearing house back then?

Trabue Bland:

It was very fast and flexible to go back to your earlier statement. I remember the first time we had a meeting with the buy-side and Jeff emailed me. I was in Chicago and I was speaking at a Chicago Fed conference. He's like, "Are you're going to go and run the buy-side meeting, right?" And I'm like, "I guess I am." So I flew back to Atlanta. I did a PowerPoint that night until probably two o'clock in the morning. I hopped on the second flight out because the first flight, I missed because a garbage truck overturned in front of the car on the way into the airport. I left at 7:00 AM. I got in just a few minutes before that buy-side meeting started. And we just winged it from there. But what we did is we listened to our customers and our customers were very clear of how they wanted to do this and the benefits they wanted to see from clearing. And we ended up delivering on that.

Josh King:

I mean, based on your experience in Washington, did you feel like the world that you would come up to know in Washington was beginning to fall apart and that this could provide some path toward recovery or at least stabilization?

Trabue Bland:

I did feel that clearing would help solve a lot of issues from the financial crisis. Key, those were proper risk management and price transparency. If you see a movie like The Big Short, I mean, you can see them talking about how they couldn't even figure out what the price was of the instruments that they were designing. And by us going in and clearing those, we actually fundamentally changed that market.

Josh King:

Just a few years later, Trabue, it's 2011, talks began regarding the acquisition of NYCE Euronext by Intercontinental Exchange. And that was completed in 2013, but the process was far from easy or without bumps along the way. What happened in terms of ICE's purchase of the NYSE? And where were you in that process?

Trabue Bland:

Besides taking over the New York Stock Exchange, which was an equity exchange, we took over [Life 00:24:33]. We had to transfer the Life business from its current clearing house over to ICE Clear Europe. It was a great asset that the value was always under recognized I think in particular, the rates franchise there, which has turned out to be very, very good for ICE. We had no exposure to that asset class beforehand. And by purchasing Life, it really allowed us to go and diversify our business out of energy, out of agricultural commodities into financial commodities.

Josh King:

Where were you in this? How did you find yourself rolling up your sleeves and being part of either the acquisition or the integration team?

Trabue Bland:

I worked on some of the compliance aspects of taking over the New York Stock Exchange. I also worked on separating out what was NYPC from which was another exchange, another driven exchange, which actually has turned out to be a really good equity index franchise for us, separating that out of NYCE transferring it over to ICE Futures US into ICE Futures Europe making sure that we cleared that at ICE... Clear US and ICE Clear Europe. So there was a lot of work, but in the scope of things that we had to do, those were fairly small.

Josh King:

After the break, Trabue Bland and I discussed the current outlook for ICE Futures US. That's right after this.

Speaker 1:

Now a word from Jennifer Tejada, CEO of PagerDuty. NYSE ticker symbol, PD

Jennifer Tejada:

PagerDuty is the digital operations management platform leveraged by developers, customer support, IT and security to help enter the brand experience for their end consumers runs perfectly all the time. Our organization reflects the diversity and the richness of our community. We're really excited about global impact. We chose the NYSE because it's a place where iconic companies are truly born in the company of giants.

Josh King:

Back now with Trabue Bland, President of ICE Futures USS. Before the break, Trabue and I were discussing his experience, cutting his teeth in the legal world of the CFTC and later at ICE as VP of regulation. Now Trabue, ICE operates a number of markets that help companies access capital, calculate their risk and even project future costs of raw materials or capital. How for example, would an airline work across ICE to better operate their business and manage their exposures?

Trabue Bland:

Let's say it's a new airline and they want to raise capital. They comes to us. They can do an IPO. People, they can get public investment in their company. Then an ICE Futures US, they could hedge their exposure to North American crude oil prices. They could actually have some of their energy costs through in natural gas. On ICE Futures Europe, They could hedge against some of the global benchmarks like Brent and WTI in Dubai. Either one of our exchanges, they could hedge their environmental exposure using our environmental contracts.

Josh King:

I mean, the vast majority of ICE Futures US contracts are not actually delivered. You spoke recently that cotton trades at nearly 30 times the actual amount of cotton on the market in a given year. Why does that happen? And how does it affect the actual cost of how much a t-shirt will cost in 2019?

Trabue Bland:

When you see those type of figures, it means that the contract is a lot more than buying or selling cotton or natural gas or any other commodity. It means it's serving as a price discovery for a lot of other markets. And people may use that as a hedge for things that aren't directly related to the commodity itself. So for example, you own apartment complex and you've got significant energy exposure with that. You could use our natural gas contracts to hedge against that type of energy use or energy exposure. And that's what you go up to say, that is a successful contract. If you see it, you use for something more than what the base commodity is.

Josh King:

So in 2007, Trabue, ICE acquired the New York Board of Trade, the old NYBOT, which got it started in 1870 as the New York Cotton Exchange just down the street at 1 Hanover Square. The NYBOT itself acquired the coffee, sugar and cocoa exchange in 1998. Let's listen to some experienced Elbit fictitious brokers explaining the world of commodities to Billy Ray Valentine.

William:

We are here to try to explain to you what it is we do here.

Speaker 9:

We are commodities brokers, William. Now what our commodities? Commodities are agricultural products like coffee that you had for breakfast, wheat which is used to make bread, pork bellies which is used to make bacon, which you might find in a bacon and lettuce and tomato sandwich. And then there are other commodities like frozen orange juice and gold. Although of course, gold doesn't grow on trees like oranges.

Josh King:

Pork belly is used to make bacon, Trabue. How much has the trading of these commodities changed since even the day that Billy Ray Valentine was being explained about frozen country to orange juice?

Trabue Bland:

First of all, I'd just like to say, thank you for playing that clip. There's too many people who haven't watched that movie that are-

Josh King:

Trading Places, Trading Places.

Trabue Bland:

[crosstalk 00:30:12]. So that are younger than you and I, Josh. And it should be seen more. And it is an extremely accurate movie by the... So my predecessor many years ago insisted on accuracy in that movie. So I watch a lot of movies that cover finance and most of the time, they're not very accurate. That one is exactly how that would have worked. In terms of how the trading has changed, it's all electronic now, which I think is more democratic. So instead of having to have some representation on a floor in New York, you can trade and you can trade with equal access from Houston or Chicago or Singapore, anywhere in the globe.

Trabue Bland:

And you can actually, you trade using a computer. You can trade using an algorithm. You can actually trade from your phone. So that's been a big shift. That's the shift that ICE was based on. We're based on two things, moving markets into the electronic age and the internet age and moving markets in declaring. So when the New York Board of Trade moves from a floor to electronic trading, I think it was very helpful to the commercial firms that trade there.

Josh King:

Trabue, I've seen you quoted a saying, "Technology, greater access and transparency have driven a golden age for US energy markets." And I wonder if you were just focusing in on natural gas, if we truly are in a golden age.

Trabue Bland:

Right now in New York where record heat. Power plants are burning more natural gas today, which is actually a cleaner fossil fuel than coal. We're burning more natural gas today. And the price of natural gas didn't change last week. That is an absolutely amazing testament to how markets work. So what's happened is is that the price signals that we saw in 2009, 2010 when natural gas got high led to a lot of investment and natural gas production. Right now, we have a lot of natural gas supply.

Trabue Bland:

So when we see a record heat wave, like it is today, the power plants can keep running and it can keep running for the same price. And that's actually passed on to the end consumer because we won't see the electricity or power rates jump up like we've seen in years previously. That is a really amazing testament to the way that price discovery and transparency work in our markets.

Josh King:

I want to drill a little bit more into US energy and environmental markets. Environmentals are growing incredibly fast in this market as environmental risk increasingly takes center stage in business, especially in relation to the energy industry. Overall, open interest and volume are at an all time high in 2019 for North American environmental products. What factors are fueling that growth?

Trabue Bland:

Well, we're seeing a huge shift in the way that firms want to invest. And we see energy firms wanting to invest in more ESG type of initiatives. They're investing a lot in wind power and solar generation, geothermal, but they're also using environmental contracts increasingly in combination with our power and natural gas markets as a hatch. This is actually a little bit behind where Europe is.

Trabue Bland:

So in Europe, you see it's been happening probably for 10 or 15 years, where electricity trades hand in hand with environmentals. That's just starting to take off in the U S in a really exciting transformation. And it's actually leading to a more green North American energy system, which people don't pay attention to. We look at all the bad news about climate change, but we have actually become a lot greener in the way that we produce energy in the United States than we have in any other time in our history.

Josh King:

I mean, talking about getting that much greener, Trabue, new markets are emerging such as the LCFS which is the low-carbon fuel standard. The main purpose of low-carbon fuel is to decrease carbon dioxide emissions associated with vehicles powered by various types of internal combustion engines while also considering the entire life cycle well to wheels in order to reduce the carbon footprint of transportation. And I'm talking about trucks, I'm talking about ships, I'm talking about the big engines that move a lot of the material around the planet. What impact do you see this market having in the coming years?

Trabue Bland:

I think it will be huge. I mean, it makes me very proud to work at ICE where we get to work on initiatives like this. These can be world changing types of initiatives, where we help shift a market to a much greener way of operating. This is one of them. Another one that we're working on is in the Permian. So surprisingly enough, the United States is now a major exporter of crude oil. So where all was priced in Cushing, Oklahoma, we see oil moving out of Permian, Texas and out through Houston. And so that's been a contract that we as a company is listed on my colleague, Stuart Williams exchange, where we are trying to get ahead of the market and trying to figure out how energy is actually priced and delivered globally.

Josh King:

So we were talking about natural gas earlier. Henry Hub is perhaps the most recognizable of the Nat Gas Futures contracts, but by no means is it the only one. ICE Trades for local markets across the country, also across the world. What should people be looking for and thinking about when it comes to Nat Gas both here in the US and internationally such as the ICE JKM LNG contract?

Trabue Bland:

There are two really interesting things that are going on in natural gas right now. One of them is that in North America, it's becoming a lot more granular. So where Henry Hub used to be the main price discovery contract for US energy. That's changed. And now we see more and more pricing at local points like Algonquin or in [Mitzi 00:36:37] or in Transco Zone 6. So in each little small part-

Josh King:

Algonquin, Mitzi, Transco. Explain this for a listener who says, I thought this guy was just into climbing mountains.

Trabue Bland:

So these are different points in, in North America where natural gas is price. So Algonquin, I think is in New York, Mitzi is in California, both becoming more granular, especially in North America, but it's also becoming more international. And they seem like they might conflict, but it make sense. So we've seen a massive takeoff in our European natural gas contracts. And that's because Europeans are using a lot more natural gas for power. And then we're seeing it price more out of Asia with our JKM contract. And that one is very interesting because Asia really doesn't have a great benchmark for energy. The price of LNG going from between Japan and Korea. And so we're seeing a lot more of the US traders trading globally and also trading a lot more granularly in North America.

Josh King:

Talking about the granular trading tribute, in July, ICE launched the New York Harbor Ultra-Low Sulfur Heating Oil Contract, which competes directly with CME. What market demand do you hope this contract serves?

Trabue Bland:

I'm hoping that it serves a need for a greener contract. And that's just the way that fossil fuels are moving. And we're trying to stay out of that.

Josh King:

Over the weekend, I read about the impact of President Trump's trade war with China and what impact it's having on the nation's agricultural industry namely billions of dollars and lost revenue for farmers dropping crop prices to an all time low and even causing a lot of farm bankruptcies. How are the tariffs and the reverberations affecting the price of ICE's Futures contracts for cotton as volumes are already down 50% year on year?

Trabue Bland:

Right. Remember that cotton is a domestically grown crop that we ship internationally. Unfortunately for cotton farmers, China is a big buyer of US cotton. What's happened is that China has switched and they've started buying more cotton from Brazil. So it is a very tough time for a US farmer to get cotton out of the United States. This is put up against a more general and flattening trend that people actually wear less cotton. So polyester has picked up as you know with your own kids. They all wear-

Josh King:

[crosstalk 00:39:26].

Trabue Bland:

Exactly. So you see kids wearing a lot more Under Armour shirts and not as many cotton t-shirts. That's changing. Cotton is definitely probably more environmentally friendly fabric than polyester, but at the same time, they need some place to mill that and to turn it into clothing. And right now China is completely shut off to them.

Josh King:

So when it comes to cocoa futures, countries like Ghana and Côte d'Ivoire, which produced 50% of the world's cocoa have talked about setting up a [Choc Park 00:40:08], which would set a minimum price for cocoa production. Sounds good in theory, but why does it rarely work when put into action?

Trabue Bland:

Anytime that governments actually try to set an artificial price, it ends up making the market worse. In this case, I mean, we reflect the underlying price. So we won't affect our markets, but it's likely to reflect the way that people buy cocoa. So it could actually hurt the same farmers that these governments are trying to protect.

Josh King:

A wholly different Futures contract is on the near horizon with the plans for backed, which has been hatched out of ICE by CEO, Kelly Loeffler to offer the first ever physically settled one day Bitcoin contract. Why is this product needed now? And what will it take to attract the interest of institutions in trading?

Trabue Bland:

This market looks a lot like energy did in 2000. There's not very good price discovery. There's very little clearing. And we looked at the investment though that's being made into cryptocurrencies and blockchain in general and we saw that there was no way for an institutional customer to have access to these markets. The potential is absolutely amazing. And it's something that absolutely has to happen. You have to have a regulated trading and clearing of it. It's a fool's game to assume that this market's not going to go away, but it is very challenging right now because a lot of financial players are both very excited about the market, but very scared of the market. So we're hoping that our solution helps them get over the finish line.

Josh King:

So after all the places that we've been now in the world, Trabue, in our conversation, let's wrap up where we started up in the White Mountains of New Hampshire. Alex Albert, who's the Co-Head of Government Affairs for ICE. Did the Mount Washington hike with you a few weeks ago? And while it was without snow and perhaps the best weather one could hope for, Alex said it was by no means easy. He did mention that you were leading the group up the mountain and were prepared with extra provisions and electrolytes. What leadership skills has climbing taught you as you think back to guiding Mr. Albert all the way up those 6,000 feet?

Trabue Bland:

That's an excellent way to ask that. From the climbing perspective, one of them is to make sure you have a plan, to makes sure that you come into it well-prepared and make sure that you lead from behind. So you want to basically walk behind the people that you're climbing a mountain with. And make sure that they can handle it, they know what they're doing and make sure that they don't step off the side of a cliff. So I spent most of my time walking behind them as we went. And I see that as very similar to the way that I manage is I want to make sure that my employees are able to pursue new initiatives and get the support from me and from greater ICE that they can't.

Josh King:

Talking about leading from behind, Trabue, looking towards the mountains, facing ICE Futures US, what are you focused on? Where does growth come from in the form of new commodities, new contracts or something else?

Trabue Bland:

We're still focused a lot on making sure that we're ahead of the curve in energy. That's again, getting much more granular in the contracts that we list in natural gas and power particularly. And the agricultural sector, making sure that our contracts serve a price discovery function. A couple of years ago, we launched a world cotton contract. For many of the reasons that we're seeing today, which is that consumption of cotton was changing. That contract in work, Cotton Number 2 still is a great price discovery contract, but making sure that we change these contracts or keep them up to date so they still serve their global purpose and serve as a price discovery function.

Josh King:

How do you keep tabs on how the contracts are doing and decide whether it's time to try new contract or make some changes to the existing contracts?

Trabue Bland:

What we really pay attention to is the number of commercial customers that are participating in it. So if you get in a situation where the commercial customers aren't using it and they're not quoting it at all, then the contract isn't serving its purpose. We can design contracts that market makers trade all day, but if someone is not using it for legitimate hedging needs, it's not working. And that's when we need to go back to the drawing board.

Josh King:

Well, Trabue, I know that you are always at the drawing board working on the different aspects of the business and keeping it all in check. So thank you very much for spending about an hour with us Inside the ICE House and telling us how it all works.

Trabue Bland:

Thank you.

Josh King:

That's our conversation for this week. Our guest was Trabue Bland, President of ICE Futures US. If you like 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, @ICEHousePodcast. Our show is produced by Theresa DeLuca and Pete Asch with production from [Steven Romanchic 00:45:26] and Ian Wolf. I'm Josh king, your host. Signing off from the library of the New York Stock Exchange, thanks for listening. Talk to you next week.

Speaker 1:

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 here in. All of which is presented solely for informational and educational purposes. Nothing here in constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the proceeding conversation may have been edited for the purpose of LinkedIn clarity.