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 for 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 12 exchanges and six clearing houses around the world. Now welcome, Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
We like to, on occasion, share with our listeners interesting content from other sources that feature commentary on a lot of the innovations happening here at Intercontinental Exchange. Recently, Kevin McPartland of Greenwich Associates, the Connecticut firm focused on key insights, metrics, and advice that industry players need to manage their business, sat down with our own Ben Jackson, president of Intercontinental Exchange, to talk about a range of topics in the trading space that are filling the headlines. You might recall that we talked to Ben ourselves for this podcast about a year ago, which we recorded on a trip to Chicago, but a year can be an eternity, at the blistering pace of exchange innovation. So now is as good a time as any for a refresher.
Josh King:
Kevin and Ben talked about the evolution of ICE over its 20 years, bringing us right up to the present, focusing on fixed income, the creation of business we now call ICE bonds, built through the acquisitions of BondPoint and TMC Bonds, and our newest announcement, the launch of ETF Hub, which will bring more efficiency and standardization to the ETF primary market, where shares of ETFs are created and redeemed. Working with the leading ETF issuers, authorized participants and market makers, ICE created the ETF Hub to consolidate issuer platforms and processes into a centralized hub for all players. By doing this, the ETF Hub will help increase participation in the market, and support the next phase of growth, which could see AUM in fixed income ETFs double over the next five years.
Josh King:
So, how to think about the ETF Hub, if you're a regular listener to, Inside the ICE House, but not steeped in the industry's language? Try thinking about it in terms of an NFL game. Think about a really well-run team, executing perfectly on the field. You see how they do it, their innovation in real time on TV, using new approaches in analytics, finance, technology, and communication, the front office and coaching staff will use every tool they've got to get the win. With ETF Hub, the creation of the share of the ETF is the win. Everything operating in sync, fast and efficient, as customers demand. In this hub are issuers, alongside banks and authorized participants, negotiating a basket of securities, with a common goal of creating a single share of an ETF. Stocks or bonds, the process is similar. The sides negotiate a basket of individual equities or fixed income assets to create the share. When that negotiation is complete, the deal is done and settled on ICE's rails through the ETF Hub, really like a modernized, standardized NFL team.
Josh King:
This is not an incremental step. It's a brand new innovation, a new marketplace for multiple issuers, and multiple banks and authorized participants to meet in the electronic middle and get their deals done, resulting in new shares. What was there before? A coach might chuckle at the old school system served up. It's very manual, very analog stuff, often dependent on the telephone and other standalone systems, but it can be fixed fast. Using our combination of ICE's industry-leading pricing, reference data, analytics and execution capabilities, we watched with a measure of pride as one of the largest issuers and some significant authorized participants took ETF out for an early spin.
Josh King:
Which brings us to the second big opportunity here, secondary trading. If the primary market is NFL Game Day, creating the ETF share, secondary trading is everything else. Scouting, draft day, camp, roster moves at the trading deadline. It's scouting stocks and bonds you want to put in the basket to create the ETF share. The old way of scouting assets was at equity exchanges, or bond platforms, like Bloomberg, Tradeweb or MarketAxess. For the first time, with ETF Hub, fixed-income execution platforms at Intercontinental Exchange will compete for business that the company once watched from the sidelines. It's early of days, preseason really, the balance of this year and into the next year is building the network and teaching everyone the system. The network effect, getting everyone on a single standardized system, is what will win on game day to bring the ETF space to the Super Bowl.
Josh King:
Then, beyond the ETF Hub, Ben and Kevin also talked about where ICE sees the mortgage marketplace headed. You'll recall we've done two recent acquisitions there, MERS, and this year, Simplifile, and where Ben sees the energy market broadly and specifically the oil, natural gas and renewable markets headed in the months and years ahead.
Josh King:
With that, I'll bring you into the Midtown offices of Intercontinental Exchange, at Park Avenue Plaza, for the conversation between Kevin McPartland and our own Ben Jackson, recorded originally for the, Beyond the Market, structure conversation series for Greenwich Associates. That's right after this.
Speaker 3:
And now, a word on ICE's ETF Hub.
Speaker 4:
Across global markets, ETFs are flourishing, and ETF assets now top $5.5 trillion, yet a variety of protocols and lack of standardization mean the time is right to help fuel further growth. Now, new advancements can help simplify the process. We're working with the industry to create a centralized hub, that connects participants and brings efficiencies to the primary market. ICE ETF Hub's unified standards and protocols supports order entry across equity and fixed income ETFs. For fixed income, the speed of custom basket will increase, with both parties using APIs, UI, and chat to assemble a mutually beneficial basket. Market efficiency will be enhanced by improved transparency, helping to boost the number of creation and redemption baskets assembled, and underlying bonds traded. ICE ETF Hub brings new efficiencies to the primary trading process, fueling ongoing growth, participation, and market modernization.
Kevin McPartland:
Thanks for ICE for having us. We're really excited to be here today to talk with Ben Jackson, the president of ICE. ICE has had a pretty fascinating evolution over the years. In less than 20 years, the company has evolved from a startup to a global leader in everything from commodities to fixed income, to equities, of course, owning the New York Stock Exchange. Ben, so you've been here for about 10 years, you've seen the second half of that evolution. What does that kind of growth and change look like from the inside? So, what's that been like for you personally, and then for the firm?
Ben Jackson:
Thanks, Kevin, and thanks everybody that's joined us on the, on the phone today. So I think the way to really summarize it is that you go back 20 years ago, around the time that that ICE was founded, it was a couple of dozen people, to today, where we're 5,500 people around the world. The DNA of the company hasn't changed one iota. What our focus has been, and continues to be, is a hundred percent on our customers, and looking at ways and that we can help to provide innovation, efficiency, and transparency in the way that they trade different asset classes, whether it's they want to hedge their exposure to risk in a certain asset class, or they want to take a directional view on the way an asset class may move. Our DNA has been, "How can we help to innovate marketplaces?" and we've always let our customers lead us there, and that hasn't changed one bit in the 20-year history of the company.
Kevin McPartland:
So, what is ice? How should we think of ICE? You're a data provider, you're an exchange group, you're a FinTech? How should we think of ICE as a company?
Ben Jackson:
I think of us as a technology company. I think of us as a technology company that, led by our customers, continues to innovate marketplaces around the world, of all types. You've seen that in all the different asset classes that we touch today, whether it's the energy space, whether it's soft, agricultural commodities, whether it's the US equities markets, European interest rates, the mortgage space, fixed income. Each of those marketplaces we've gone into, led by our customers, and where there's been a particular area in each that we found an inefficiency that we can help to improve, and help innovate that marketplace.
Kevin McPartland:
Do you think that's a fundamental shift in the exchange business overall? Is that something specific to ICE? It's definitely been a big evolution though, since the financial crisis, for everybody.
Ben Jackson:
I think for us, just having identified early on, being a relative newcomer to the exchange space, when you compare us to some of the others that have been out there, by really looking at what our customers needed, and also focusing heavily on corporate customers, for example, people that are really, at the core, looking at these markets as risk management tools, in ways to hedge their exposure to risk. In engaging with them, we not only innovated and help to build more efficient, more transparent and more effective marketplaces for them to trade, but we also took a different approach, for example, in commodities, where we very specifically appreciated the fact that, in the commodities markets, customers want to hedge their exposure to risk, at the exact point of consumption or production of where they need to consume that particular commodity.
Kevin McPartland:
So before we dive into the weeds on the individual business lines, let's talk a little bit about you. You're the president of one of the largest exchange groups in the world, must be an absolutely fascinating job. I think a lot of people will be curious to understood, how did you get here? How did this whole evolution how come to be, and you end up in this seat?
Ben Jackson:
Thank you, Kevin, thanks for the question, and so, a little jog down memory road. It actually started at university. So I went to a school outside of Cleveland, Ohio, John Carroll University, and my roommate in college, his family was very connected into the New York Mercantile Exchange, our competitor. Very connected in there, and one spring break, we went for a week, and I had an opportunity to spend a week on the floor of the NYMEX, just seeing how trading was happening. This is the early to mid '90s timeframe. I was absolutely shocked, as a kid growing up still, to see that at that point in time, in the early mid '90s, how manual all of the trading was, and how all the deal formation was happening. The fact that if you are a large corporate customer, and you needed to hedge your exposure to price risk, you didn't really have a transparent way to understand what the price of oil is, something simple that we take for granted every day.
Ben Jackson:
You had to call down to a particular trading floor, that broker took the order, brought it a trading pit where prices are screamed out, and then the prices and the price formation that happened during that pit is then communicated back over the phone to the customer. So extremely manual, extremely inefficient. I decided at that point in time, very, very young, that this is an area of the market, I think, is a place that I really want to be a part of, and I really want to see innovate. So-
Kevin McPartland:
So did you, sorry, did you think for a second, "Hey, I should be a floor trader, there's good money here?" Or was it more of, "You know what, something is ready to be disrupted in this business?"
Ben Jackson:
I was a bit more of a technology geek and nerd, growing up. So, I went at it, and looked at it and said, "No, this isn't really, "Do I want to do I have an interest in going into the trading floor?" It's, "How do I get into the more of the technology side of it?" That's why the first couple stops in my career were with several different consulting firms. While in those consulting firms, I was able to work in the fixed income, currency and commodities, areas of companies like Goldman Sachs. Bank of New York is another example, Wells Fargo is a third. All in and around how these customers are managing trades, or managing their customer relationships, and also managing the trading relationships with these customers. Also, to get exposure to the underlying platforms that are being used, and got to see real innovation that was happening at that time, in the very early 2000s.
Ben Jackson:
My next stop in the career was with SunGard. So, with SunGard, I managed all of the energy and commodities businesses at SunGard, which spanned financial and physical trading, scheduling risk management, types of platforms. So think of that as during, really, the 2000s period of time, where the energy markets went through a massive innovation. Where it went from very manual, very difficult to get price transparency, not only in the financial markets, but even more so in the over the counter markets and in the physical markets. In running those businesses, I got to shepherd in a whole decade long of innovation and bringing electronification to those markets.
Ben Jackson:
During that time at SunGard, I actually bought a business from Jeff Sprecher, the founder of ICE. So I bought a business that was a risk and data oriented platform for commodities, and that's where I developed, really, a relationship with Jeff. Then, when an opportunity presented itself to join ICE early this decade, I jumped at the opportunity to come on board, and the first role I had was actually with the ICE futures US business, the former New York Board of Trade, really shepherding the change of what was open outcry trading for the soft agricultural markets, bringing futures and options to be traded a hundred percent electronic, like they are today.
Kevin McPartland:
That's a great lesson, that you never know where your next opportunity is going to present itself.
Ben Jackson:
Hundred percent.
Kevin McPartland:
That's great. Then, so you came on, focused on the futures market, obviously. Now, we're going to get into this, now, you're looking at a whole host of things, fixed income, commodities. You mentioned the data business, right, as well. So, what got to you to that point, and then, I guess, how do you keep tabs on everything, and figure out where to spend your day?
Ben Jackson:
Yeah so, first stop was running the ICE futures US business. As part of that role, and knowing that I had a pretty significant financial technology background in underpinning, I'd always been a part of the executive steering committee of ICE, and really touched on anything that we've done in the data or financial technology-related space. When you think about the landscape of where we are now, with trading and clearing houses, you have the traditional financial technology players, and then you have banks, clearing houses or banks and brokers, it's all one big Venn diagram that's, that over the last couple of decades, has been coming closer together. So, in that role, I've really touched all the different aspects of our business. A few years back, I went into the role of managing all of our M&A, as well as not only the fun part of doing the deal, and doing new positions for ICE, but also then doing the hard work of the integration of those businesses and ICE. So that really put me right in the middle of all of the innovation that we've seen over the last 10 years.
Kevin McPartland:
Yeah, no, that's a really unique perspective. So, when you're at a cocktail party, or at your kid's sports games, and people say, "Hey, what do you do for a living?" How do you even answer that question? You're a banker, FinTech exchange, data salesman. What do you tell people you do?
Ben Jackson:
"I have fun." We're involved with so many different, unique, fun things, and just the amount of change that this area the marketplace has seen, and the level of engagement that we have with our customers, on a day in and day out basis around their willingness to say, "Hey," and engage us, and say, "Hey, these are some real problem areas that I have." Perhaps in like fixed income, for example, where we've made a lot of investments recently. "These are really areas of challenge that I have," and they're really willing to be open, and partner with you based on the assets that we have in our stable, to really help them innovate, and make the marketplace more efficient. Again, it's a lot of fun.
Kevin McPartland:
Yeah, no, I can only imagine. So let's use that to dive. So we'll dive into fixed income first. So, ICE bought Creditex, then, Interactive Data, then BondPoint, then TMC. You have one of the biggest, I think the biggest clearing house for CDS. So that's a tremendous fixed income business that you've put together over the last, I guess, a little less than a decade. So how have you, and then, I guess there's still a lot of work to do. How will you make that feel like a cohesive fixed income business with so many diverse assets?
Ben Jackson:
Yeah. It's almost like an alphabet soup, when you go through it by all the company names. The way I think about it, and the way our company thinks about it, is we think about it as really a complete, comprehensive solution set that we've built across all those acquisitions for our customers. So, everything from, we have the market-leading pricing and reference data business, the golden record for millions of instruments around the world, for being the representative price, both on an end-of-day basis and a real time basis, as well as all the reference data that underpins it. We're a leader in the index space, in the passive investing space, with owning the Bank of America Merrill Lynch index business, that's by far one of the leaders in the marketplace, with real assets under management underpinned to that. We have a market-leading analytics platform in our bond edge business, that also came with the IDC acquisition, that provides rich, powerful analytics for buy side, and corporations that are trying to understand what the attribution of their portfolio, and, is the portfolio designed to meet their particular needs?
Ben Jackson:
Then, we also have a choice of execution protocols. So everything from portfolio auctions to RFQ, a lot of that came along with the Creditex acquisition, and the clearing acquisition that you had mentioned. Then, most recently, back in 2018 last year, we did the acquisitions of BondPoint and TMC that gave us more of a central order book, trading platforms in both municipal bonds and corporates. So when you think about it, it's everything from data analytics, so the analytics that inform what it is you want to trade to choice of execution protocol, and then the exhaust that comes off of that execution gets fed back into our analytics platforms, and into our data offering, and it becomes this virtuous circle and this virtuous loop.
Ben Jackson:
So, how do we make it all work together? It goes back to what I said in the beginning, that it's all about really partnering with our customers around, "Where are their pain points?" Very early on, when we started this journey, it started with engaging a lot with the buy side. If you're a buy side manager, for example, and you care about a particular index that you're benchmarked to, well, if you think about that, we now have assets that enable an asset manager to benchmark to our own index. They can benchmark to, we can engage with them and provide a white labeled index for them. They can decide to benchmark to a third party index, which oftentimes will be underpinned by our pricing and reference data.
Ben Jackson:
If you're a manager, depending on the strategy that you have, and you're going into a rebalance, what are you looking to do? You need to reduce your slippage to however that index ends up rebalancing, or you may look for trading opportunities to beat your index. Because we're the pricing and reference data provider underneath the vast majority of the marketplace, that underpins all of these indices, and a lot of them are our own indices, we can give people a really good view from our analytics, and from our pricing and reference data suite, on, "What are the trading opportunities that they can have going into a rebalance? What is that rebalance most likely to look like?" Identify trading opportunities through that, and then, with our portfolio auction capabilities, as well as our central order book trading platforms, as well as our RFQ platforms, we can give customers the ability to choose. "What's the most efficient way to get those trades done that we've identified are a good opportunity for you?"
Ben Jackson:
So it's led by the customers. That really defines, what are the workflows that are across the different assets that we bought, across the different companies that you mentioned, that we bought. Identifying those workflows that really define the way the pieces get stitched together.
Kevin McPartland:
Historically, for an exchange, the relationship was with the broker deals to the [FCMs 00:22:15], not the buy side, but that obviously sounds like it's changing, right?
Ben Jackson:
Yeah, a hundred percent, and another area where you'll you see that is in a new innovation. So I'll give you another example of how we partnered with customers, that just went live this week, and that's with our project called ETF Hub. So that really started with BlackRock, one of the major issuers, one of the major buy sides on the street, and then expanded to the other issuers. So think of Vanguard and Invesco, State Street and others, and then that expanded to ETF and market makers.
Ben Jackson:
At the core, what the problem was when we started to engage with this audience 18 months ago on this, at the core, a lot of those entities saw that there was innovation, and that, as you would know, Kevin, as you follow these companies more so than anybody, there's been a lot of innovation in some electronification that has happened in fixed income. We've got a long way to go in the corporate markets, for example, where 20 to 25% are electronic, but there's innovation happening, and there's electronification starting to take hold.
Ben Jackson:
An area where there's been really no innovation, and no electronification has really taken hold, and no standardization is in what's called the primary market. So think of the corporate bond, traditional trading market, as secondary. In the primary trading market, this is that whole point in time where, if you're an investor and you want to buy a share of an ETF, how is that share created? That whole space has been completely analog. It's been an area where there's different types of disconnected systems that are out there, that if you're an AP and you want to get access to all the different issuers, all the different ETF products from my end customer, that I can get them access to and understand, "What do I need to do to create a share?" It was all disconnected IM systems, different trading platforms you have access to. It's a lot of phone-based, analog-based transmission of information and negotiation.
Ben Jackson:
With the launch that we had on Monday this week, of our ETF Hub project, for the first time, you as an AP and a market maker will have access to multiple issuers, you'll be able to see all the different ETFs that you can choose from for a creation. You can see, "What are the 50 bonds," for example, "That I may have to give, to create one share of this high yield ETF?" You can negotiate what's acceptable in that basket, through our instant messaging platform. Once the deal is codified, you can then go ahead and consummate the transaction, then go through the settlement process of that. All on our rails, all on a standardized technology stack that is open for portfolio management systems, accounting systems, execution systems, all to connect into.
Ben Jackson:
We're excited about this innovation, and I know that our partners, that have been along on the ride with this, is also excited about the launch we had.
Kevin McPartland:
I'm sure, and I assume that will take in ICE Data Services data, it will probably contribute to ICE Data Services data. You've got the link into the trading venues, that should help them along. Then, the other buzzy topic in corporate bond land has been portfolio trading, which is very linked to ETFs as well. Is that something else, or a part of that product?
Ben Jackson:
It is. A lot of the capabilities that we've had, as we've been on this journey of really building an institutional business in fixed income, that's comprehensive from trading to data, to analytics, etc., all of those pieces of the puzzle were key to really getting this off the ground. In portfolio trading, the capabilities came from the Creditex acquisition. We've been in the space where we have been providing portfolio auctions to our customers for a number of years, and it's an area that we've invested a lot in the past year, to specifically be able to meet the needs of customers in the ETF space.
Ben Jackson:
The ETF space, first of all, it's obviously one of the red hot areas of growth in, in, in fixed income. But secondly, it's an area where you're really seeing a blend of traditional, institutional-size trades and retail-size trades starting to come together, because when you're actually executing an ETF transaction to create a share, for example, it's oftentimes you're getting a large number of CUSIPs, a large number of bonds. So, call it 50 to a hundred bonds are going into a basket, but of each of those bonds, it could be 5, 10, 15, 20 bonds that are going into it. So the ability to trade all of that as a group, and as a basket, is important. We have the capabilities to do that and provide it, hanging off the ETF Hub for our customers to access those protocols. Or, we have the ability in our central order book platforms for people to, if there's a just particular names that you need to fill out a basket, that we have the ability to give them an official way to do that.
Kevin McPartland:
That evolution is interesting, because TMC and BondPoint on their own were looked at as, quote unquote, "Retail," but it seems that nomenclature doesn't really work anymore, right? It's not so cut and dry, retail, institutional. It seems like we're getting more and more of an overlap, right?
Ben Jackson:
I'd agree with that. What we saw with TMC and BondPoint is the fact that there's very few protocols in fixed income that look like, for example, the futures market today, where it's really a central order book, where you can go onto a screen, and you have prices, firm prices that you can go ahead and address, and execute. We knew we already had the institutional side. Between the relationships that we've had over many decades, with IDC being the institutional pricing provider for the vast majority of the buy side and sell side for north of three decades, as well as the passive investing expertise that we have with Bank of America, Merrill Lynch index business. Then, with the Creditex business, between our clearing relationships with these customers, the auction protocols, the RFQ capabilities, this TNC and BondPoint, we found as a unique way to fill out that product suite by getting these central order book platforms.
Kevin McPartland:
That's great. So, to go on from that, muni's been finally getting some attention in market structure, electronic trading land. As a researcher put it, he only put it about 12 to 50% of the market's electronic. There's been a lot of news from some of the non [inaudible 00:28:53] liquidity providers, but that's a fascinating challenge, right? It's a million CUSIPs compared to the corporate bond market, 60,000. So, but you guys are a big part of that evolution as well, right?
Ben Jackson:
Yeah. Where we started there was in pricing and reference data. So you brought up a million CUSIPs in that space, and what's interesting about the municipal bond space is that the whole valuation problem's even more acute there, because out of that, out of those million, how many actually trade every day? Probably less than 1% of those trade every day. So the first thing you have to really get right is, "How do we value these instruments?" Soon after we bought the IDC business, we bought the S&P evaluations business, which was a market leader specifically in the pricing of municipal bonds. We have the analytics platform and analytics capabilities in that space, continue to invest and enhance that. That's really where we started.
Ben Jackson:
From an execution standpoint, TMC is obviously a significant player, and BondPoint was also a player in the execution of municipal bonds. So I see it as, we have the front to back offering there. Municipals is less mature, even more so than the US corporate markets will. You do have a lot of inertia in that space, where it does take time to get people to move, but we think we have the right ingredients.
Kevin McPartland:
Yeah. Seems like we're getting there. So, the one major market that ICE doesn't seem to be a huge player in, and you can tell me if we're wrong, is US interest rates. So, why not? Are there any plans? What's the company thinking around the rates market?
Ben Jackson:
So, well, when you think about it from a front to back solution standpoint, I would make a correction that we are in that space, and where we are in that space is, in terms of a pricing and reference data provider in US interest rates. Second way to think of us there is that, on our execution platforms, it's common that people will hedge a corporate bond portfolio by also hedging it with treasuries, to make sure that their exposure is only to the underlying corporate instrument.
Kevin McPartland:
And they do that right on-
Ben Jackson:
And they do that right on our platforms, whether it's our RFQ facility or it's TMC and BondPoint, we have the ability to offer that, and customers are doing that day in and day out.
Ben Jackson:
The third area is, look at the announcement we just had with Tradeweb, where we're doing closing treasury prices, in partnership with Tradeweb. So, it's another area where we are looking at the US interest rate space. I think in terms of, would you see us go and buy a dedicated, specific trading platform in US interest rates? I would never say never to anything, but that's probably unlikely, because it's a very mature market. It's very already electronic, it's already very efficient, it's already highly competitive, and we'd have to find a pretty unique angle as to something significantly different we could do and provide for our customers, and we haven't seen that yet.
Ben Jackson:
But you raised good points, right? We should all make sure we think about, we think about the electronifying of markets, it's execution, but it's also data and processing, and there's so much more to it, to help the markets become more-
Kevin McPartland:
[crosstalk 00:32:05]. So, shifting direction slightly. So, the other big rates market that you are involved in is mortgages, which I guess we can debate whether we should call that a rates market, but you get where we're going. So you've done some acquisitions in the last year or two there as well, right? Can you talk a little bit about that?
Ben Jackson:
Sure. I can. So it's early days in that, and there's some things I can share and some things I can't, but let me describe the couple of assets of where we started, and I think you can draw some of your own conclusions on where we might be heading.
Ben Jackson:
So if you look at the first one, which was MERS, the Mortgage Electronic Registry Service, what's interesting about that business is that, at its core, it's a database. It's the central repository for the vast, vast majority of mortgages that are created in the US. They need to get a MIN number, a Mortgage Identification Number. That MIN number is like a social security number, that tracks that mortgage for the life of it, all the servicing rights of it, who owns the servicing rights of it, the details of the loan. Also, all that information is captured in this master repository, master database, and that's the business that we started with, that we're now running for our customers and partnering with our customers, to find out what are other areas in a market like mortgage, which is probably the most analog of the asset classes that are out there? For anybody that's done a real estate transaction knows the stack of documents that you're still going-
Kevin McPartland:
And that's somehow physically signed, digitized, right, and then get gotten up to be packaged up and institutionalized, right?
Ben Jackson:
Absolutely, which actually leads to the second acquisition that we did. So, the acquisition that we did just earlier this year is a business called, Simplifile, based out in, in Provo, Utah, and think of the Simplifile business as, go back to that closing room. When you go to that closing room on a real estate transaction, the first thing you need, if there's a mortgage associated to it, you need that MIN number, that comes from the MERS database. The second thing you need to do is, you need to go, and the settlement agent needs to take all that documentation and file it with the local jurisdictions. So you have thousands and thousands of settlement agents around the US, and thousands of jurisdictions, local counties, that you have to go to, to consummate a real state transaction.
Ben Jackson:
But what Simplifile has done over the last 20 years is, they basically have built the electronic rails whereby all that information that goes into the closing table is electronified, and that's electronically transmitted to the jurisdictions. Then, think of it as not only that transmission agent of all that digital information, but it's also helping with the electronic settlement of those transactions, and communicating that settlement information to, for example, the bank that was on-risk with the person that sold the home, to, now, off-risk for the person that's that sold the home, to on-risk for the person that bought it, that's representing that buyer.
Ben Jackson:
So we think it's an interesting place to start, with those two areas, because, what do you have? You have a network, you have a database of information that underpins a lot of the creation of securities in this space, and it's an area that we're going to continue to invest.
Kevin McPartland:
Sure. And as a firm, who's also focused quite a bit on distributed ledger and crypto, right? I guess, like you said, we can draw our own conclusions as to what some of the opportunities might be down the road, as to how you can continue to make that market more efficient, and hopefully closing, for the rest of us, to be quite a bit simpler.
Kevin McPartland:
So, we're getting close to time. I think the last big bit that we haven't touched on are the energy markets, which is really where you came from, and I guess you could say where ICE came from, as well. As primarily, I guess, a fixed income nerd the last few years, for me, I know enough about energy to know that it's very, very different, in many ways, than many of the other capital markets. You guys play a bunch of different roles, right? Say, in data, you have some of the biggest futures contracts, and you've done some new initiatives recently. So, what are the most pressing things we should understand about the energy market and how it's evolving?
Ben Jackson:
Sure. So let me touch on a couple different ways. So let me start with how we approached the energy space. I mentioned this a little bit up, up front, but when you look at us versus our competitors, most of our competitors have a single instrument, a single contract that trades in a single location, and that's their primary focus. Our focus, because we have been very targeted toward the corporate customers at heart. Think of a power company, think of a major manufacturing company. This is who we partnered with very, very early on, to say, "What are the needs that aren't being serviced that you have?"
Ben Jackson:
At the end of the day, while the underlying commodity instrument that's trading in various areas around the world, oftentimes can be a very similar thing, the pricing dynamics around that similar thing can be vastly different. If you're in the south, consuming natural gas, for example, in the Southwestern part of the US versus the Northeast, because they are suspect to very different weather patterns, very different supply disruptions that can happen there. So, price formation can be vastly different, and if you are dependent upon hedging your price risk on a product at a single location, that can vary widely from what your actual real exposure is, at the point of production, or the point of consumption.
Ben Jackson:
So, fundamentally, that's the different way we've approached it, and when you look at our marketplace, in each asset class that we have, we have hundreds and hundreds of products that trade around the world, and that's done very, very well, when you think about some of the dynamics that's happened, where there's been an explosion of data, there's more transparency on the value of instruments all around the world. There's much better ways to value instruments around the world, so as more information becomes available over the last couple of decades, people want a more precise tool to manage their exposure to price with. So, that in itself has had its own virtuous circle in helping to grow our energy marketplace.
Ben Jackson:
Some of the trends that you'll see, that are out there, the most significant one in energy is that we, the United States, used to be a net importer, and now we're a net exporter. When we became an exporter of these goods, and you'd put on top of that, with the explosion of shale gas, that's being found across the US, and on top of that, you put the fact that the technology to convert natural gas from its gaseous state into a liquid state, and then transport it overseas has become a heck of a lot more efficient, you now have demand for US products from all over the world, where you used to not have that.
Ben Jackson:
A perfect example of the natural gas space is that the Northern part of Europe and Asia Pacific is one of the largest areas where we're exporting L&G to, from the US going outbound. Historically, people would hedge natural gas production, and L&G production against Henry Hub, in Louisiana. Now, because customers are looking at, "Well, where am I are actually going to consume this product, and where is price formation of this product actually the best place for me to hedge?" They're looking at where the product lands. So, exports that are leaving the US Gulf and heading over to Northern Europe, we're seeing more and more being hedged, instead of on Henry Hub, put on the TTF contract, which is our liquid benchmark, sitting in the Netherlands, that has grown over a hundred percent year over year.
Ben Jackson:
If that same cargo, if it's destined for Asia Pacific, it's being hedged via our contract and partnership with Platts, the JKM, Japan Korea Marketer. That contract's up 200% year over year. So you're seeing that customer preference on their ability to hedge natural gas exposure, being at those particular locations.
Kevin McPartland:
Because it's a more effective hedge, [inaudible 00:40:27] this risk, because it's really targeted towards what exactly it is that they're doing.
Ben Jackson:
Correct.
Kevin McPartland:
So to try to tie it all together, if we think about renewables or ESG as an example, right, ICE has, you have all the mechanisms for the ETF, for the listing, for the managing of liquidity in the secondary market, you have a futures contract to help hedge all the energy sources. You have the data to help price it, to help investors understand what it is they're buying. It really is creating, and I guess I should ask in the form of a question, is that the challenge for you? All these businesses, on the surface maybe seem very disparate and all over the place, to really tie them together and show how there's a single, big offering? That you really can put it all together, that's really, really compelling for all of your customers?
Ben Jackson:
Yeah. It's a very common question, and conversation that we're having, and dialogue that we're having with our customers in a number of different areas. I'll give you a couple examples. So going back to, if you're a power plant operator. If you're a power plant operator, you need to decide when you're going to produce power on a given day. Are you going to use a renewable source, which can be very intermittent? Are you going to use natural gas? Are you going to use coal? And you also have to understand the price of basically emitting and carbon emittance in that. So it's a formulaic calculation that you have to use, and you also, if you're using renewables, you need to know, what are the backup intermittent source in the instance that the wind's not blowing for example?
Kevin McPartland:
Or the sun's not shining.
Ben Jackson:
Exactly. Exactly. So we, very early on, have built out our marketplace to, one, be global, but also we're the leader in all of those asset classes. So, from power to natural gas to oil, which we've already talked about, we also bought the Climate Exchange 10 years ago, which really put us into the middle of the renewables and carbon allowance space in both the US and Europe. So we're constantly engaging with our customers around that mix. We're seeing our emissions markets can continuing to grow, our carbon allowance markets, for example, continuing to grow, that business grew about 8% for us over the last year, and we think has a lot of runway to go, and in particular, it's still really developing for us in Europe.
Ben Jackson:
So that's one area, and one way that we can engage with customers. The second is on ESG-related issues. That's front of mind with customers, and we're constantly looking at the data sets that we have, the reference data that we have and engaging with various people in the index space that have ESG type of offerings, to say, "Based on all this reference data and knowledge that I have around customer base, how can I best engage with you?" We're going to continue to do that.
Kevin McPartland:
Fantastic. Great. Well, I think we're just about out of time. So, Ben, thanks very much for taking the time. Good luck with the rest of 2019, and we'll all be watching to see what, what ICE does next.
Ben Jackson:
Thank you, Kevin. Thank you, everybody.
Kevin McPartland:
Great. Thanks very much. Thanks, everybody, for joining, and have a good rest of the day.
Josh King:
That's our conversation for this week, a special podcast offering with Kevin McPartland of Greenwich Associates interviewing Ben Jackson, president of Intercontinental Exchange. 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 question you'd like one of our experts to tackle on a future show, email us at [email protected], or tweeted us @icehousepodcast. Our show is produced by Damon [Level 00:44:04] and Pete [Ash 00:44:04], with production assistance from Ken [Abel 00:44:06] and Ian [Wolf 00:44:09]. 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 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 a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.
