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It’s unlikely that anyone will accuse Jeffrey Sprecher, CEO of ICE, of lacking vision.
The Intercontinental Exchange he started in Atlanta to trade commodities 13 years ago will have a market cap of $20 billion when it takes over NYSE Euronext, as is expected to happen this spring.
At the FIA Boca conference in Florida last week, Sprecher explained the thinking behind ICE’s expansion, and it’s not just about size.
“We want to be a multi-asset class company and have a multi-asset clearing structure. Then we can take the positions of our customer base and deal with them all in one clearing infrastructure.” That provides economies to traders who don’t have to spread their money on deposit across several silo clearing houses to handle their trades.
“In a world where Basel rules are making capital expensive for banks and where interest rates will at some point rise above zero, having a multi-asset clearing structure will be incredibly important.”
The NYSE-Euronext acquisition brings ICE into financial products in a big way, a move beyond its roots in commodities, he said.
“It’s very interesting that our two companies have no overlap, it’s a completely completely new set of products and jurisdictions that we haven’t been in before.” NYSE brings ICE into new areas such as interest rates and foreign exchange, he added.
“We will also acquire new technologies inside NYSE Euronext and figure out how to exploit the technology and rationalize it.”
He expects to take the four European stock exchanges that are part of Euronext -- Amsterdam, Brussels, Paris and Lisbon, move them into a separate company and take it public.
Sprecher has been an outspoken critic of the fragmentation of equities markets.
Speaking about the U.S. he said: “Competition is good; fragmentation creates risks which aren’t priced in.” The U.S. probably doesn’t need 70 execution venues and 200 internalizers.
“I think continental Europe needs more consolidation in the exchange space,” he told the FIA conference. “You have interesting phenomena where EMIR creates ESMA, a continental regulatory oversight council. You have pressure on the European Central Bank to become a true central bank for Europe. The banking industry is being treated similarly. In the financial services world, the euro crisis and the aftermath of the Lehman collapse is driving a financial market, a cross-border transaction-based industry and you still have exchanges in every single country. It seems the exchanges need a federation to accommodate local markets for capital raising but allow trading across borders.”
BATS and Che-X, which do allow trading across borders, threaten the viability of the local exchanges.
“I want Euronext to be the first mover in continued consolidation or federation. We are trying to stimulate that conversation in Europe.”
The NYSE-Euronext merger has been approved in the U.S. and is awaiting European action. He is hoping that NYSE Euronext will be effective in promoting the value of exchanges and encourage more entrepreneurs to take their companies public. Taking ICE public was an unbelievable life experience, he said, and he wants NYSE Euronext to attract some of the great Silicon Valley entrepreneurs who have exhibited little interest in going public.
Not that he’s losing any interest in commodities.
In September ICE bought 79 percent of a gas and power derivatives business based in the Netherlands, a business which had been a part of APX Endex. The deal that is going through its final stages of regulatory approval.
“It will be ICE’s first exchange on the European continent,” Sprecher said. “I think it will become important for us as we deal with ESMA regulations coming out of the EMIR rules. Its flagship is a continental natural gas contract.” Nothing like a stake in the market to learn how it works.
ICE already makes a marker for UK natural gas contract.
“I think natural gas in Europe is relatively immature and benchmarks in UK and Amsterdam will become important from a long-term strategic standpoint,” he said.
“The interesting thing about commodities,” Sprecher added, “Is that we are relatively immune to commodity prices. Commodities are the most interesting asset class because they have volatility, and the volatility comes largely from acts of God. People need to hedge whether the price is going up or down.”
As an aside, Sprecher offered an intriguing comment on his own leadership style.
“Every company has a culture. I am a terrible manager. I try to lead by example and try to be communicative. That style self-selects people who are comfortable. We have hired some fabulous people who are really well qualified and just hate the way we operate and leave.”
