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 in 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 12 exchanges and six clearinghouses around the world. And now welcome Inside the ICE House, here's your host, Josh King of Intercontinental Exchange.
Josh King:
Data drives nearly everything we do. It helps grow the food we eat, providing farmers with information on weather, soil quality, even shipping information to forecast delays. It can save lives aiding scientists and research teams with analysis on clinical trials and pinpointing disease outbreak. It can capture voter sentiment, predicting election outcomes around the world and as a result, change how we are governed. But as we sit here in the library of The New York Stock Exchange today, our focus lies on how data and the technology behind it is fueling the financial industry.
Josh King:
Our guest today, Lynn Martin, president and COO of ICE Data Services, one of the largest parts of Intercontinental Exchange and in many ways, the connective tissue that brings all parts of the company together. Leading a business which at ICE's third quarter earnings call a few weeks ago, brought in $530 million over the previous three months, split between pricing and analytics exchange data and desktops and connectivity, it's a big business, comprising 2500 people and growing at an annual clip of about 6% at last check on an organic constant currency basis. But how does it drive the economy forward? That's the thread we'll weave into our conversation with Lynn as we dive into the inner workings of the business. We'll also find out what lies ahead for the future of the data industry and how Lynn Martin found herself leading that charge. That's right after this.
Speaker 3:
Allo is a next generation smart home company that provides a super simple do it yourself home security solution with up to 48% market share and class-leading internet technology. We're looking at new products and even grow internationally. The NYSE, obviously, has a tremendous history. The way that they actually bring the stock to market, there is a human element that stabilizes the market and you can see that in the stock opening today. Having a strong partnership to actually bring Allo as a public company was really important to us. You only get to do this once.
Josh King:
It's a home game today in the ICE House as we're talking with Lynn Martin, President and COO of ICE Data Services. Like many of the products and departments she oversees, Lynn came to Intercontinental Exchange through acquisition. She was happily working away as CEO of NYSE Liffe US, the futures market of the NYSE at Euronext when ICE bought the place lock, stock and barrel five years ago. As part of the merger, Lynn was tasked with the tall order of integrating the NYSE Euronext contracts into ICE's trading platform as well as introducing several new fixed income and equity index futures, areas which she is continuing to help grow today. Lynn, welcome to the ICE House.
Lynn Martin:
Thanks for having me.
Josh King:
Let's start from the beginning. More companies than ever before rely on financial data and analytics in order to effectively manage their risk. I mentioned the three areas of ICE Data Services segment in the introduction. Why don't you give us a thumbnail for each in words that the average podcast listener can relate to. So, start with pricing and analytics. It was $263 million in quarter three.
Lynn Martin:
That's right and I think it was up about seven and a half percent on organic cost and currency basis. So, it's one of our faster growing businesses within ICE Data Services. The way I'd really describe the pricing and analytics side of ICE Data Services is we provide a high quality third party evaluation for everything that's in a customer's portfolio. Things that are in a customer's portfolio aren't just limited to one asset class such as a security. It's everything from a security to its hedge, which in many times is an OTC derivative. It's a compilation of security, such as an index. It's terms and conditions around those securities, which would be our reference data business. It's basically everything that is really in a customer's portfolio that they need to trade, particularly in the fixed income markets.
Josh King:
The second piece is exchange data. If you look at revenue in the third quarter, that's about $146 million.
Lynn Martin:
Yep. The exchange data business is really the business that we harken back to. When we say we've been in the data business since we were founded at Intercontinental Exchange. Why is that? It's because we've really been an operator of electronic marketplaces. The exchange data business is the bids, the offers, the trade information, volume, high, low, all of that important information for the lifeblood of Intercontinental Exchange, which is our markets.
Josh King:
The third area desktops and connectivity services, you total that up for the third quarter, $121 million.
Lynn Martin:
Desktops and connectivity, I like to refer to as the backbone. What that business does, which is really unique to ICE is it provides the transport mechanism for our own proprietary data, which were the first two portions of the segment you mentioned. But it also couples that with other third party data. Because as trading strategies have evolved over the years, it's not enough to just provide a single market view to a trader. Our desktop and connectivity business does what it says on the tin. Desktops provide a visualized version of the data. The feeds business provides that in more machine readable format, providing more than 450 market centers to our customers through a single API.
Lynn Martin:
Then our connectivity business is the wires/wireless business. It's really the transport mechanism. We provide access to more than 600 forms of proprietary and third party content to the trader. And given the level of cybersecurity that we operate that network under, it's really unparalleled service to what's in the market.
Josh King:
It's a phrase that we have said before on this podcast, it's almost a cliché, data is the new oil. Investors using more data than ever. I'm curious from the perspective of where you sit, why? What makes a critical building block for the financial services industry data?
Lynn Martin:
That's a really good question. It's a bit of a virtuous cycle when it comes to liquidity. Data provides transparency to add liquidity to markets. The more liquid a market is the more data it outputs. There's a bit of a virtuous cycle that gets created, as a result of having high quality data available to financial markets. It's all about price discovery. It's about everything from finding where fair value is for a specific asset class. But it's also even within fixed income, which are the less transparent markets, sometimes about providing available securities for trading. Without information, without high quality information, you don't necessarily have the liquidity that we experience in the markets that we operate.
Josh King:
The numbers I mentioned earlier for the various parts of the business, adds up to 6% quarter over quarter growth. That was sort of the magic number that analysts were looking for from ICE Data Services versus. And maybe if you looked some of the notes earlier this year and into last year, they wondered if we had it in us. What's been the driver getting up to 6%?
Lynn Martin:
I'd say some of the 6% numbers really come from the fact that we've acquired some businesses over the last few years that were more 2% to 3% growers. If I look back at the Interactive Data acquisition, which was about three years ago today, actually, that we acquired that business. That business was growing 2% to 3% every year. There was an understandable question of, could we grow that business faster than it was growing?
Lynn Martin:
Today, we're growing the core of Interactive Data, which is the pricing and analytics business, faster than the 6% grower. From our perspective, it was more creating new products, bringing it into the 21st century, which allowed it to accelerate from a growth perspective from that 2% to 3% to more the 6%.
Josh King:
We're going to get more into the Interactive Data acquisition story in a few minutes. But I wonder as you talk to people who have been part of Interactive Data for a long time, do they feel the momentum increase at a run rate of 2% to 3% to now at 6%? What's the difference in the feeling in the hallways?
Lynn Martin:
When we acquired that business, it was mainly focused on back office functions. When we acquired the business though, we knew that it was a business that was ripe to move into the 21st century. A 21st century someone doesn't want to mark their portfolio one time at the end of the day, after the markets have closed. They want to mark their portfolios intra day and they want to mark their portfolios real time or near real time basis. We've invested a lot in the business since we acquired it, both on the pricing side of the business. We now price 2.7 million securities globally, real time throughout the course of the day, providing traders with a view of what fair value is at any given point.
Lynn Martin:
We've got some great quantitative talent in our organization that's really developed mathematical models to enable us to price those securities throughout the course of the day on near realtime basis. But we've overlaid it with former traders who are our evaluators who really strip out the noise that those models produce throughout the course of the day, and add some market expertise to our evaluations. That's what we're really known for, the fact that we provide a nice blend of automation, but also the market expertise so that when someone looks at our prices, they know, "Yeah, that's actually probably about what that bond should be priced at."
Josh King:
Bring me back to the beginning, the creation of this thing we now call ICE Data Services, which initially sold data from ICE futures exchanges and got a boost after ICE's acquisition of the organization that you were working for, NYSE Euronext. You started out at IBM, which is ticker symbol for the NYSE, IBM in late '90s. What were you doing there?
Lynn Martin:
I'm a quant at heart. I'm a quant by background. I'm quant by training. I got my degree in computer science. I'm a reformed programmer, as I like to tell my tech team all the time. When I started my career at IBM, I was actually writing code. I was in their global services practice and I was someone that they farmed out to different companies, focused on the financial services to help them write code. Really then that we were focused on the Y2K transition, not to date myself. I was pretty much focused on recoding systems from two digit dates to four digit dates, and then overseeing the architecture that ensued as a result.
Josh King:
Then you came over to NYSE Euronext, where you were CEO of NYSE Liffe US. What did the business look back then compared to the way it looks today?
Lynn Martin:
When I had joined the life organization prior to being CEO of NYSE Liffe US, the organization had just gone through a fundamental shift from floor based trading to electronic based trading. The face of the trader was very much changing. They didn't need someone to explain to the trader what the individual futures contracts were, they needed someone who could talk to a trader about writing to this thing called an API, which was a new and novel concept at the time.
Lynn Martin:
Clearly, the fact that I had a programming background, and by that point, I had received my master's degree in statistics, that could sort of talk the talk with the actual coder, as opposed to the trader was something that became interesting from a hiring perspective. But those markets at the time, back when I first joined the Liffe organization, I think your [inaudible 00:12:39] average daily volume was about 100,000 a day.
Josh King:
Compared to today?
Lynn Martin:
Yeah, compared to million today. It's completely dwarfed where it was. But that's mainly because of the advent of electronic trading. It really unleashed the capacity in those markets and the global distribution of the markets really unleashed the capacity in those markets.
Josh King:
In 2013, Jeff Sprecher steps in, Intercontinental Exchange buys, NYSE. How did that turn your world upside down?
Lynn Martin:
I love telling people that story because I think it to how we really operate the business and how we look for folks who are cultural fits for the organization. As I got to know Jeff and the rest of the ICE management team, they said, "No, you are not going to leave the organization. We would really like for you to stay within the organization when you complete the integration, because you are a cultural fit. It's very important for us to have the right culture of people, the right-"
Josh King:
Thinking back, what were the things that made you a cultural fit?
Lynn Martin:
I think some of the things we tried with NYSE Liffe US, we took some interesting risks around new product development in particular, a lot of which turned to be very successful. For example, emerging markets, MSCI Emerging Markets Futures and MSCI EAFE Futures, were initially listed on NYC Liffe US, and those are two of our most successful contracts, now that they're on the ICE Futures US platforms. Also just the way we looked at the world, we were really more focused on getting stuff done, getting stuff done quickly and getting products out the door.
Josh King:
Bring me through the evolution of ICE Data Services from there. Let's say 2012, 2013, up until 2015, when IDS comes.
Lynn Martin:
2013 ICE closed on the acquisition of NYSE. Middle of 2014, I became COO of ICE Clear US. Then around that time, Jeff started to think about formally making that pivot into the data services industry. I had talked to Jeff about it probably the beginning of 2014, but we were still trying to figure out what data services really meant and what it really looked like. Because as you said, we've had the exchange data business and we've had that since we founded the company. Then with the New York Stock Exchange came ICE Global Network, formally at that time known as The Safety Business. Which is when I was referring to desktop connectivity, that's really the guts of the transport layer that we operate.
Lynn Martin:
The end of 2014, we acquired a small business called SuperDerivatives. I'd say that was really when we started the pivot into becoming a data services organization. Then we made the decision to formally set up ICE Data Services mid 2015.
Josh King:
Then as you're looking around the landscape for something like the SuperDerivatives business, are you doing the due diligence there? Are you thinking about what kind of a integration fit it will be with what you're trying to put together?
Lynn Martin:
There was a lot of things that were interesting to us about SuperDerivatives. Number one, getting the quant expertise that SuperDerivatives had, we thought could be really useful, not from a pure business standpoint, but also given their background, it would be very analogous to some of the work we do in the clearing houses and the modeling work that needed to be done to manage risks in the various clearing houses we own and operate. That one was a really attractive acquisition to us because it had multiple utilities for the organization. It wasn't just a good business on its own, but it also brought a pool of talent that we could leverage in the clearing side of the business.
Josh King:
Then the big gulp comes in 2015. ICE buys fixed income data provider, Interactive Data Corporation, the price tag, $5.2 billion, if I have it right, another big money bet. What did you want to do with IDS when you got it under your roof?
Lynn Martin:
The first thing, which it sounds simple but it was not simple, was really to integrate the businesses. I mentioned how at ICE we're very focused on our culture. We, as a result of buying IDC, we bought a company that had 2,500 people. Takes a long time to get to know 2,500 people. Bringing it together, number one, and trying to integrate it from a cultural perspective where you had the right people in the leadership positions.
Lynn Martin:
The second thing was really, it became apparent to us during diligence on that deal, that business had significant potential just with a little bit of investment in a few key areas. It was first, identifying what the low hanging fruit was in terms of investment and hitting those really early on, getting the investment dollars in to really start to grow those businesses and morph them in into the businesses they are today.
Josh King:
The businesses they are today, let's look at the whole engine of ICE for a minute. 12 regulated exchanges from here at the NYCSE, the Chicago Stock Exchange, which we acquired this summer, ICE Futures US, ICE Futures Europe and NGX, just to name a few. That engine throws off a lot of exhaust in the form of proprietary data. It's really just a fraction of the data in the business that you run, but for that part of the data, how do folks use it and how does it help grow this business?
Lynn Martin:
The exchange data business itself, is probably about roughly 500 million of annual revenue, which is about 25% of overall revenue. About 12.5% of ICE Group's revenue. That business is used in a few ways. It really is very integrated as you would expect to the trading businesses. It not only provides important information about high, low indicators, which may trigger different market events, it provides bid offer information, trade information, all that good stuff, which informs traders as to where to find their next trade or for price discovery purposes. Within the bucket though, within that $500 million, the data revenue that is generated from the US equity markets is a relatively small portion. It's about $200 million worth of revenue, so about 10% of overall revenue, about 5% of the group's revenue.
Josh King:
You also offer reference data and evaluated pricing for the fixed income markets. If I were to try to translate that into plain English, you put a price tag on millions of bonds. We were talking about that earlier. Had that been a dusty corner of the financial industry in need of some sprucing up?
Lynn Martin:
I think the fixed income markets are ripe for innovation. I don't think anyone would disagree with that. The fact that the market trades the way it does, someone just hearkened back to 1955 and a market that's still trading like it's in 1955. I think that the problem with the fixed income markets is a share of IBM is not the same as debt that IBM issues. A share of IBM is a single thing, IBM issues hundreds of bonds. You've got to find a price for those hundreds of bonds, as opposed to a single share of IBM. There's a variety of ways to do that, and it's not enough to just provide those prices on an end of day basis. That's the bit that we've really transformed to move into the more real time side of the business.
Josh King:
How do you use the pricing and proprietary data that we get to build new products and services that market participants are demanding? Take me in real time into the R&D shop of ICE.
Lynn Martin:
Because we have such a broad stable of proprietary data, we can create all forms of derived data on top of that. Derived data could mean a lot of different things. It could be an analytic, it could be another valuation, it could be something that is used as the base to set a model that could then create additional information for customers. When we are looking at creating derived data, we're going to look at a couple things. We're looking at number one, what our customers need at the moment?
Lynn Martin:
Regulation, for example, has been a huge tailwind for us over the last couple of years. It's allowed us to create an awful lot of additional derived data, which customers are very interested in and have found a lot of usefulness in. Some products include our MiFID II service, our best execution capabilities, more recently, our liquidity indicators. Each one of those is really using our core evaluations and our core proprietary data as the base. We're using the base to create something new and innovative to bring to customers, to add value to their portfolios.
Lynn Martin:
I'd say probably the one area that's been incredibly interesting from our perspective, that we've created over the last couple years, is really the index business that we've built. We had a suite of indices, which customers were using to benchmark their portfolios against on a variety of asset classes, some smart beta indices, the US Dollar Index. Then last year, we announced the acquisition of the Bank of America Merrill Lynch suite of indices. Which really completed the asset classes that we had under our umbrella. It brought to us out 5,000 indices, mainly fixed income, but also commodity indices.
Lynn Martin:
The nice thing about the fixed income indices, is they all already used our evaluations. That project was a great project for us, because not only were we able to showcase our evaluation quality, we also replaced another third party from a reference data and an analytics standpoint, with our own proprietary reference data offering and our analytics offering, with zero disruption to the indices. That business has significantly grown since we closed on the acquisition in October of last year.
Josh King:
In ICE's third quarter earnings call a few weeks back, the founder and chairman and CEO of ICE, Jeff Sprecher, had some pointed thoughts about our nation's equity markets, reacting to questions that some have had on the role that market data plays in our exchanges. Let's take a listen.
Jeff Spreche:
Markets offer the most advanced trading and most transparent data services in the world. Services that are critical to market efficiency, resiliency, and security and why the cost to trade US listed equities is the lowest in the world. Today, price information is available equally to retail investors for little to no cost. A direct result of competitive forces across brokerage and exchange marketplace. In fact, we believe that the NYSE data costs to the top five Wall Street banks, is less than one half of 1% of the nearly 26 billion that they've generated in their equity related businesses, just so far this year. This is in stark contrast to the state of the equity markets only a few years ago, a state in which the exchanges were owned by many of those same banks and brokers. When access to data and information was discriminatory against those who are not the exchange owners. It was an era that many falsely romanticized.
Josh King:
An era that many falsely romanticized. Lynn Martin, you and I were talking recently in Chicago about what Jeff was talking about on that call, how many folks overlook this key linkage between the way exchanges operate today and the value that the granular data that we create provides to those making algorithmic trades on behalf of large institutional investors, the pension funds and others who are helping build the retirement nest eggs of teachers, police officers, firefighters and others. Where's the disconnect? How should people be looking at this?
Lynn Martin:
Well, I think there's two things here that are getting a bit missed. Number one, the goal many years ago, was to drive down the cost for the retail investor. That goal has very much been achieved. I think the focus on US equity market data, is a bit picking on one piece of the value chain that has caused the retail investor to have the lowest cost possible. It's not looking at the entirety of the ecosystem that operates what we wanted to do 10 years ago with Reg NMS. I've heard Jeff and I've heard Stacy make this statement, but I'll make it as well. This is very much not about Main Street. This is a Wall Street debate, and we're picking on one piece of the ecosystem that folks have some objection with from a cost perspective. It doesn't make an awful lot of sense to me.
Lynn Martin:
The other thing that I think's really getting missed here, is the cost to the firms created by fragmentation of markets. No one's really talking about-
Josh King:
Explain fragmentation of markets.
Lynn Martin:
Reg NMS introduced the requirement to route to the location where a trade would receive the best bid or offer, depending on what you were doing. As a result of Reg NMS, many firms, in order to stay competitive, need to connect to multiple venues to evidence either the best bid or the best offer has been given to the investor or to see what the full stack of that exchange's bids and offers are. Connecting to 13 different venues in the US, comes at a cost to a firm. But that's a cost that's been and imposed by the regulation. It's a bit of a side effect of the regulation. But that's really the debate that folks should be having. Has Reg NMS driven the cost to the end user down, but introduced a whole different level of cost as a result of fragmentation? Not the cost of one little part of the ecosystem that has driven those costs down.
Josh King:
Much of that debate sort of laid itself out recently at the Securities and Exchange Commission two day round table on market data. I think what resulted in that was in realization that it's not just the exchanges. It is these other market participants very much a Wall Street versus Wall Street conversation, a discussion of where profits lie, not whether the Main Street investor is being palmed. For them, all the data they get and they really need is almost for free.
Lynn Martin:
It is. Pull up your phone right now while we're talking, we'll see where the ICE stock closed today, and it'll be for free. If we want to trade on that, we can probably tap an app and trade on that. That's a great thing as Lynn Martin, the retail and Josh King, the retail investor. When we say it's a Wall Street debate, it very much is. Because the folks at the table are the exchanges versus the Wall Street firms.
Josh King:
After the break, we are talking more about indices. What makes them so important within the data business and why increased regulation will require more data than ever. That's right after this.
Speaker 6:
Elanco has been in the animal health business for over 64 years. We're all about a care and the wellbeing of animals. Making pets as well as livestock live longer healthier lives. We've been launching three products a year since 2015, we've added almost 20% to a pet's life. We're coming into an IPO with a portfolio of innovation. The New York Stock Exchange just like Elanco, brands matters. Behind brands are people, cultures, and quality. Elanco, now listed on the New York Stock Exchange.
Josh King:
Back now with Lynn Martin, president and COO of ICE Data Services. As we were just getting started in our conversation, Lynn, you talked about your quantitative background and you certainly have the cred, a BS in computers science from Manhattan College, a master's in statistics from Columbia. Perhaps not the path for a woman from Brooklyn. What was your upbringing like?
Lynn Martin:
My dad was an electrical engineer. He's a quant at heart too, so he always sort of pushed me in that direction.
Josh King:
How did he get his quant background?
Lynn Martin:
That's a great question. I actually don't know the answer to that. It was just stuff came, I guess not easy to him, it was just stuff that more intrigued him rather than anything else.
Josh King:
Who did he work for as an electrical engineer?
Lynn Martin:
Oh, he worked for basically any firm that serviced the defense industry. Everyone from Raytheon to Lockheed Martin, to Grumman, to a variety of folks.
Josh King:
All in the New York area, or he moved around a lot?
Lynn Martin:
He moved around a lot. His first job was actually down at Cape Canaveral. He worked on the Polaris missiles, which I thought was pretty cool. Then he moved over to California and he moved to Boston, then back to New York.
Josh King:
Was home like a math class for you?
Lynn Martin:
No, but when I didn't do well in math, I heard about it. I'll assure you of that.
Josh King:
Was it a little uncommon for a woman to follow the path of your dad into being in quant?
Lynn Martin:
When it came time for college and we were trying to figure out what my major was, I didn't... What college kid 100% knows what that want to study in college? I certainly didn't. We were filling out college applications and I said to my mom, "What should I do?" She's like, "I don't know, maybe finance, maybe economics." My dad's like, "Why don't you do computer science?" I remember him saying to me, "You should look at computer science, because there are women in that field or there are starting to be in that field." He turned me away from following in his footsteps and going to pure engineering route. He didn't see a lot of females in his field doing circuitry and things of that nature. I have my dad to thank for the kick over to computer science initially.
Josh King:
He also had an incredible work ethic, didn't he?
Lynn Martin:
He did. He worked six days a week until he was 70 years old. He worked 12 hours a day during those six days a week. Although I think on Saturdays, he only worked five hours. But every week it was every day, except Sunday, he went into the office. There wasn't things like telecommuting back then. He did 7:00 to 7:00, five days a week and then 9:00 to 2:00 or 3:0 in the office on Saturdays.
Josh King:
Leadership also counts for a lot. Many of us were captivated by the dramatization of female mathematicians from the 2016 film, Hidden Figures. Here's Taraji Henson, As NASA's Catherine Johnson, lecturing a room of men on Euler's method.
Catherine Johnson:
The problem is when the capsule moves from an elliptical orbit to a parabolic orbit. There's no mathematical formula for that. Is we can calculate launch and landing, but without this conversion, the capsule stays in orbit. We can't bring it back home.
Speaker 8:
Maybe we've been thinking about this all wrong.
Speaker 9:
How's that?
Speaker 8:
Maybe it's not new math at all.
Catherine Johnson:
It could be old math. Something that looks at the problem numerically and not theoretically. Math is always dependable.
Speaker 8:
For you it is.
Josh King:
Math is always dependable, Lynn. Just like your dad in the Polaris missile program, there's Catherine Johnson working on the Mercury program. As you help pave the way for other women in financial data services, what was it like trying to break through the boys' club?
Lynn Martin:
It was interesting. It was interesting going through school, particularly college and grad school being one of, if not only female in classe.s But quite honestly, that made me probably work harder than some of the other folks. It wasn't one where you were going to meet a lot of friends. Although I do have some friends from college that were in my program. But it was one that if anything, I knew I had to be better than the next person. It was one that in some ways motivated me.
Josh King:
Did you have any mentors when you were first starting out in your career?
Lynn Martin:
When I first started out in my career, I had a mentor at IBM who was a female. She was one of the first project executives I worked for. She had a team of, I think 40 of us that she shepherded through a Y2K project for JP Morgan actually at the time. I was amazed at how she kept the project moving, kept us all accountable to our dates and also her command of the actual technology that was underpinning our project.
Josh King:
Outside of the business that we've been talking about, data plays such a huge part in our lives. You and I both ride Peloton. Here's one of Peloton's TV spots. If you're at home, you may have seen it.
Speaker 10:
Okay, Peloton, let's do it. Rachel in London, I see you. Let's see what you've got today. David in Edinburgh, that is 200 rise. Let's make it count. Do not give up now. Let's go. Let's climb together. Here we go. You are stronger than you know. In 3, 2, 1 saddle. Great job Peloton. You smashed it.
Josh King:
That's a 45 minute workout, Peloton, a company that could go public in the future. At a group class or in the privacy of your own home, yet all the data of your own exertion stacked up against thousands of other riders from around the world.
Lynn Martin:
That's the greatest thing. Because you're pushing yourself. You see where you are on the leader board. Not only are you competing with other people when you're in a live class, but you're also competing with yourself. That's the thing that actually makes Peloton special, in that it's got that personalized metric about you.
Josh King:
It tells you what your strengths are, what your weaknesses are, when we're good, when we fall short. Sort of a metaphor for trader looking at their screens from the ICE Global Network.
Lynn Martin:
Yep. That's right.
Josh King:
In just two decades, Intercontinental Exchange has grown from a small energy trading platform to a global data and exchanges, commodity and financial markets and technology and clearing infrastructure, with over 5,000 employees worldwide. How do you grow like that, and stay focused on the mission? You started out at IBM. Let's go back and listen to the chairman of IBM at the time, Lou Gerstner, talking about changing a company's culture.
Lou Gerstner:
Changing culture is really hard. And it's not about communications. When I got to IBM, the first question I got from almost 60,000 people in the first three months was, "Hey, Lou, the culture here stinks. What are you going to do about it?" I said, "I can't do anything about morale. What I can do is make the company better. If we make the company better, then your morale's going to go up. Let's not focus on morale, let's focus on beating our competitors in the marketplace."
Lou Gerstner:
So changing culture is about looking at every single process in the company and saying, "Does this process line up with our strategic intent?" My strategic intent was to integrate, to provide solutions. That meant we had to be able to integrate inside the company. Well, it turned out, I said, "How do we pay people?" "Oh, we pay people on individual performance." "Well, how can we have teamwork if everybody's being paid on individual performance?"
Josh King:
Does Gerstner's philosophy translate into ICE?
Lynn Martin:
Absolutely. He said culture. Culture is the first thing and I agree 100%. That's why we're so obsessive about our culture. I think we have a great culture at ICE. We're so obsessive about maintaining that great culture. I think everything he said is pretty much similar to what we're doing at ICE Data Services. One of my jobs is to really give our team new products and new ideas to deliver to the market. It's one of the things my management team on the product side and I obsess about.
Lynn Martin:
Is how are we evolving this business? What new products can we bring to the market that are complimentary to a customer's workflow and to the way the customer operates that allow them to gain efficiency? It's a very different conversation when you're talking to a customer about how you are helping them, as opposed is to, "You need to buy something? Okay, I'm going to charge you the highest rate possible." I never want to have that latter conversation. I want to have the conversation of, "How am I adding to your business and making your business more efficient?"
Josh King:
A key facet of ICE's growth strategy, is the index business and its role within pricing and analytics, Lynn. People generally have a sense of what indexes are, but perhaps not the inner workings and how they use data to function. This summer, it was announced that ICE had been selected as the new benchmark provider for four of BlackRock's iShares US Bond ETFs. BlackRock, the world's largest asset manager with 6.29 trillion in and assets under management as of the end of last year, also just announced it had selected us as their benchmark for another ETF, which represents over 16.4 billion in assets under management. Walk us through the importance of ICE being selected as benchmarks for these ETFs and what they mean.
Lynn Martin:
First, I'm going to give an over simplification of what an index is and why we're well positioned. Effectively, an index is a compilation of values informed by some weightings and outbits and index value. That's my over simplification. If you look at the fixed income indexing ecosystem, you've got the valuations, which is our evaluated prices, which was the guts of what we bought in IDC and what we've now transformed to not just be end of day, but real time, informed by some weightings. The weightings are our reference data. Now our reference data business, we have invested a lot in over the last three years. We now have high quality reference data on more than 11 million securities globally. That information is very much used as the basis to inform the weightings that are applied to the valuations I mentioned earlier.
Lynn Martin:
The last bit, which again, I'm going to oversimplify, is the analytics on top of it. What price yield calculator do you use for example, to inform the index? What option adjusted spread are you going to use? There are a variety of analytics on top of the evaluations and the weightings component that actually form the index. All of which is provided by ourselves. It goes back to that base form of proprietary data and that large base of proprietary data I mentioned earlier, as really the core of our business.
Lynn Martin:
BlackRock choosing us, was tremendous from our perspective, because it really did two things. Number one, you mentioned the BlackRock size and scale. The amount of AUM that's moved over from those five indices is close to 40 billion, which is not a small amount. But it also showed that the largest asset manager in the world, in partnership with us, can actually perform a transition from index provider A, over to our indices. Index transitions aren't done very frequently, but we proved with a high level of accuracy, that that was not going to be an issue.
Lynn Martin:
The most recent transition, the PFF ETF, from our perspective, that's really interesting because that's not just about a cost play. We designed an index in partnership with BlackRock, a NYSE index, to allow them to have the capacity to further grow that ETF. That's why they selected us actually, is because of our calculation methodology, our constituent selection of really the IP that we put behind the index. That's really why they made the decision. It's going to allow their ETF to continue to grow. We're excited because it speaks to the quality of our indices. It's not just about a cost play, it's about the quality of the index as well.
Josh King:
Earlier in the conversation, you mentioned that new regulations were one of the factors driving the increased use of data, not just in the US, but Europe as well. Share with us how ICE is helping its customers with regulatory compliance and the new liquidity rules of MiFID.
Lynn Martin:
As I've mentioned, regulation has really been an enabler. It's been an enabler for us because it's actually enabled us to reach a whole new customer base that we hadn't previously dealt with. Enabled us to service our existing customers, sure, but it also enabled us to reach out to new customers. We've really had multiple regulations. I get asked this question a lot, actually. We've had multiple regulations, which we've helped customers comply with. Starting with MiFID II, around this time last year in EMEA and customers seeking to comply with MiFID II, although some us customers also faced that, this year, we really focused on compliance with Form N-PORT, which was an SEC form that the mutual funds needed to complete. That went live at the end of June.
Lynn Martin:
The liquidity rule firms are starting to shadow report, starting at the end of the year in anticipation for full compliance next year. But then next year, we're going to be focused on additional regulations. FRTB is one we're really focused on in Europe. Which is affectionately also known as Basel IV. There is more and more regulation that requires regulators to have transparency around what is in a customer's portfolio, not just the assets that are in a customer's portfolio, but what is the profile of that portfolio? In an extreme situation, how quickly could they liquidate that portfolio, for example. All of that to me is data driven trends, which require additional forms of data.
Josh King:
You're a member of the SCE's Fixed Income Market Structure Advisory Committee, which is working to improve transparency and liquidity in bond markets. What are the conversations you're having there? Is there anything we can learn from that process that could be applied to the equity markets?
Lynn Martin:
I think the SEC FIMSAC committee that you pointed out I sit on, has been a very forward-thinking move by the SEC, to really look at one of the biggest markets in the world, the fixed income markets and try to figure out what can be done to enable more liquidity to come into those markets? It's a realization that the world looks a lot different today than it did pre financial crisis, particularly as a result of the various challenges on bank's balance sheets. I think the SEC is being very proactive in looking for ways to continue to add liquidity to these markets, given the capital constraints on the banks. We are a very active participant on that committee. I think some of the recommendations we've come out with thus far have been beneficial for the markets. We're looking forward to a second year.
Josh King:
A lot of people can throw darts at the SE, but you're of the view that this is one area that's really working.
Lynn Martin:
Yeah. As someone who spends a lot of time with them on this committee, I'm chair of the Muni Transparency Subcommittee, actually, so I spend quite a fair amount of time with them. They really want to hear what the market's thinking here. And they seem to be more inclined to pursue market-driven solutions, as opposed to regulatory mandates, which is refreshing to hear.
Josh King:
Earlier, we mentioned the ICE Global Network. It's a pipeline for financial and commodity market flow, a consolidated feed that provides constant access to global markets. How have these services evolved since combining the NYC Safety Network with Interactive Data's networks and feeds and Atrium, which you acquired from TMX Group? How are these services being used by ICE's customers today?
Lynn Martin:
The Safety Network, when it was acquired in 2013, is really the backbone for ICE Global Network. That was a network that at the time, was primarily focused on providing high quality, resilient, reliable transport services to the exchanges of the New York Stock Exchange. Those were the New York Stock Exchange as well as the Liffe markets and at the time, the Euronext market. Since we acquired the New York Stock Exchange, we've greatly expanded the content available on that network.
Lynn Martin:
Today, there are more than 600 forms of data available on that network globally. We've expanded the footprint of the network. At the time, it was primarily focused on the US with some tentacles into Europe. Now we've got tentacles into Asia, so it's a fully global network. Then some of the solutions that you mentioned that we have acquired through acquisition specifically, the TMX Atrium Network have really expanded the different types of services available. We're no longer just a wired network, we now have wireless capabilities. Fastest routes to Canada, we've got a route to Chicago. Then recently last year we signed a partnership with a group of end user firms, to supply the fastest link into the Far East, into Japan. It was called the Go West Partnership.
Lynn Martin:
As I sit here today, it's a network that's got a variety of options for a customer to plug into. We've got variable levels of bandwidth available, which allow customers to really tailor the type of connectivity they have to us. If they're the most latency sensitive customer, they're going to take wireless from us and they can get more than 600 forms of content.
Lynn Martin:
Now, when you think about how that network started, going back to being the network that powered the New York Stock Exchange, it's got a whole different level of cyber security on top of it, which in this day and age is something that very much resonates with customers. They'd rather have fewer connections that they know are secure and reliable, than the spaghetti they had in their comms rooms in the past. Which is why more and more customers are consolidating their connectivity with ICE Global Network.
Josh King:
We've covered pricing and analytics in this conversation. We've covered exchange data and indexes, and we've covered the ICE Global Network and the consolidated feed. How about next gen technology? Is ICE embracing artificial intelligence, the cloud, and other new cutting edge technologies?
Lynn Martin:
Yeah. On the cloud side, we're looking at how we partner with the cloud for things like tick data storage and things of that nature. I think the cloud is still being looked at with a little bit of kid gloves, as folks are still figuring out how to best make leverage of the cloud and its storage capabilities. That's where we are really starting to leverage it as well from a storage capability for our historical data services.
Lynn Martin:
Artificial intelligence, it's a great question. It's one of those many buzz words in the data industry that people love to talk about. A lot of times when people talk about it though, they don't really have examples to back up how they're using artificial intelligence. We've got this proprietary instant messenger application called ICE Chat.
Lynn Martin:
When we first started ICE Data Services, it had about 30,000 users, 35,000 users in the directory. As I sit here talking to you today, it's got 93,000 users in the directory. It's got the entirety of the energy and commodity ecosystem in this directory. Price discovery for the entirety of the energy commodities markets, and increasingly the equity derivatives and equities markets, is really taking for the more OTC stuff, through this mechanism.
Lynn Martin:
The neat thing about it is we have artificial intelligence built into it. It knows Josh, if I'm talking to you about last night's Peloton ride, or if I'm talking to you about a WTI call option. It ignores, if I'm talking to you about the Peloton, because it doesn't really care. But if I'm talking to you about that call option, it will automatically populate Greeks, what we determined as fair value for those Greeks. And it allows you to simply click on the quote if it recognizes it as a quote and submit it to the ICE clearing houses. I think that's a great example of how we're actually implementing artificial intelligence and those types of strategies, to create the next generation of analytics for us.
Josh King:
If you were a market participant, Lynn, without a complete package of data services from ICE, looking ahead to the new year, what would you most want for Christmas?
Lynn Martin:
I think the one thing that our customers are starting to use is this artificial intelligence thing I mentioned in ICE Instant Messenger. I think that's going to be an area that you see us talk a lot about in the future. I think the index business, I think the reference data business, actually. The way the reference data business was once described to me, was the most boring form of data. I said, "No, no, no. I don't care if it's boring, it's the most systemically important form of data. Which is why we invested in it in 2016."
Lynn Martin:
Terms and conditions associated with corporate bonds is a gnarly business. We've figured out a clever way to electronically deliver that information into customer's back offices and middle offices and front offices. Because quite frankly, you need those terms and conditions in order to trade the security. It won't be set up on your security master, if you can't get those terms and conditions, as soon as a bond is issued. Those are areas that I think you're going to hear us talk a lot about, and we're talking a lot to our customers about.
Josh King:
Sifting through a gnarly business, a perfect Christmas gift from Intercontinental Exchange. Thanks very much Lynn Martin for joining us [crosstalk 00:51:04].
Lynn Martin:
Thanks, Josh.
Josh King:
That's our conversation for this week. Our guest was Lynn Martin, president and COO of ICE Data Services. If you liked what you heard, please rate us on iTunes so other folks know where to find us. 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 tweet at us @NYSC. Our show is produced by Teresa DeLuca and Damon Level, with production assistance from Ian Wolf and Ken Abel. I'm Josh King, signing off from the library of the New York Stock Exchange. Thanks for listening. 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 his 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 has 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.
