Energy Products Boost ICE

Terry Flanagan

Although overall trading volume has been down through the first half of the year, derivatives and options exchanges such as the IntercontinentalExchange have been the benefactors of a shift in investor interest.

New product launches, strong energy trading volume and an expanding global strategy have led to better-than-expected earnings for Atlanta-based IntercontinentalExchange. For the second quarter, ICE reported net income of $121.4 million on revenue of $325.2 million, up from $101.7 million and $296.2 million one year prior, an increase of 19 percent and 10 percent, respectively.

“In the long run, these markets will grow,” said Robert Schwartz, professor of finance at Baruch College. “Clearly the growth of derivatives has a lot of potential for upside as the market structure evolves, becomes more global and becomes more integrated. I think all of this has room for growth.”

The derivatives trading venue launched 145 new energy products in the second quarter, bringing the total to 181 energy products for the year-to-date, said Jeff Sprecher, ICE chief executive officer in a Wednesday conference call. An additional 18 products were launched on Aug. 1.

ICE also reported record trading volume in Brent crude and Gasoil futures and options contracts during the quarter. Brent volume was up 30 percent in July alone.

“There were no options markets in Brent,” said Sprecher. “Historically, all options in oil were traded against (West Texas Intermediate), because they were so closely correlated. “WTI and Brent are no longer highly correlated, so we launched options trading in Brent, and we’ve seen a dramatic takeoff in that initiative.”

Also launched on Aug. 1 was BRIX, an electronic marketplace for Brazilian power contracts. This came about two weeks after ICE announced it had acquired a 12.4 percent stake in Brazilian clearinghouse Cetip, the largest holder of fixed income, securities and bonds in Brazil.

Sprecher said that ICE will buck the trend of stock buybacks and dividend payouts, and instead will reinvest its capital. “We believe the demand for derivatives trading and clearing will increase over the coming decade,” said Sprecher. “There remains plenty of opportunity for high yielding capital deployment at ICE.”

The earnings report came one day after ICE reported a 14 percent increase in total futures trading volume during July. It saw volume increases in all of its product lines with the exception of its index options and futures, which declined 9.1 percent.

Last week, CME Group reported net income of $293.7 million on revenue of $838.3 million, which was also higher than analysts expected. The numbers rose from $270.7 million and $813.9 million, respectively, in 2010.

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