IntercontinentalExchange (NYSE: ICE), the leading electronic energy marketplace and soft commodity exchange, today announced its plans to build on its existing U.S. clearing operations with the formation of a wholly-owned European clearing house. The clearing house will be based in London and is part of ICE’s strategic plan to offer clearing services through wholly-owned clearing businesses in the U.S. and the U.K. These clearing houses will complement ICE’s diverse futures and OTC execution business while uniquely meeting the risk management and regulatory requirements of a global marketplace.
The European clearing house, to be known as ICE Clear Europesm, will partner with ICE’s U.S clearing house to serve ICE’s global customer base across the commodities and financial products marketplace, including futures and over-the-counter (OTC) markets. ICE Clear Europe is preparing an application to the U.K.’s Financial Services Authority (FSA) to become a Recognised Clearing House. The final application is expected to be submitted by July 2007. Assuming that the information provided is satisfactory and the timeline is met, regulatory approval is anticipated in early 2008. In conjunction with its January 2007 acquisition of the New York Board of Trade (NYBOT), ICE acquired the New York Clearing Corp. (NYCC). NYCC will be renamed “ICE Clear USsm” effective June 1, 2007 and will continue to operate as a registered Derivatives Clearing Organization under the oversight of the U.S. Commodity Futures Trading Commission (CFTC).
ICE expects to transition its energy futures and OTC derivatives business to its own clearing operations at the end of the second quarter of 2008, through the transfer of positions to ICE Clear Europe. Currently, ICE’s energy futures and OTC derivatives businesses are cleared through LCH.Clearnet Ltd.
The ICE Clear group will leverage a common technology and development team from the outset. The Extensible Clearing System (ECS), a highly flexible platform originally based on the OnExchange system, will serve as the cornerstone of the expanded clearing technology platform. For the benefit of European firms presently clearing ICE energy markets and to minimize their technological and operational changes, ECS will be linked to the Trade Registration System (TRS) for ICE Clear Europe. This is the posttrade technology platform currently used for ICE’s cleared energy markets and is provided by AEMS (Atos Euronext Market Solutions). In April, ICE announced an investment in TRS technology capacity.
Beginning in January 2007, ICE and NYBOT engineers began a second phase of development around all NYCC clearing systems to significantly expand functionality, processing capacity and electronic trading interfaces. Prior to NYBOT offering electronic trading in early February, ICE and NYCC quickly and successfully integrated their respective trading and clearing platforms, with the initial development efforts resulting in a ten-fold expansion of clearing capacity. Currently, ICE’s technology and clearing team is developing a new state-of-the-art clearing platform employing new technologies such as Java J2EE, Oracle and IBM AIX. Design and development on the enterprise solution is ongoing, with the next phase of clearing enhancements supporting a new Post Trade Management System (PTMS) slated for completion in June 2007.
“We believe that through collaboration with futures and OTC market participants, we are uniquely positioned to execute on a best-in-class clearing solution, and one that addresses the risk management requirements of ICE’s diverse and global business,” said Jeffrey C. Sprecher, ICE Chairman and CEO. “Earlier this year, we began actively planning and executing on our strategy with a team of technology and clearing experts assembled from both inside and outside our organization in the U.S. and Europe. Our highest priority as we expand our clearing platform is to ensure the integrity of the financial framework that underlies these vital operations.”
Sprecher continued, “At the same time, we believe continued innovation and competition in clearing will offer meaningful benefits to the broader trading community. Gaining greater control over this core capability will allow us to introduce more services to the OTC markets for brokers and dealers. And finally, this flexibility will allow us to increase our speed-to-market for new cleared products and to expand our products further into the physical commodity markets.”
With regard to expectations for clearing revenues and expenses, ICE has provided the following estimates and information. ICE expects to provide further information on ICE Clear as details and timelines are available.
- In 2006, ICE estimates that its customers generated approximately $50 million in clearing fees payable to LCH.Clearnet relating to ICE’s futures, options and OTC
contracts cleared through LCH.Clearnet.
- ICE expects to begin clearing its energy futures and OTC contracts as of July
2008 following the migration of this business from LCH.Clearnet.
- As a result, ICE estimates in 2008 it will realize incremental clearing revenues
beginning in July of approximately $25 million to $30 million, with annual
incremental clearing revenues in 2009 in excess of $60 million. ICE does not
provide revenue or growth forecasts.
- Annual incremental clearing expenses for ICE’s clearing operations are expected
to be in the range of $9 million to $14 million.
- ICE expects to incur $7 million to $9 million in start-up costs over the combined
period of 2007-2008 in connection with the development of ICE Clear, with some
portion of these expenses to be capitalized relating to technology and software
development costs.
- Capital expenditures related to clearing over the combined period of 2007-2008 are projected in the range of $7 million to $10 million. The portion of capital expenditures relating to the current year was included in ICE’s earlier estimates of $25 million to $30 million for 2007.
About IntercontinentalExchange
IntercontinentalExchange® (NYSE: ICE) operates the leading global, electronic marketplace for trading both
futures and OTC energy contracts and the leading soft commodity exchange. ICE’s markets offer access to
a range of contracts based on crude oil and refined products, natural gas, power and emissions, as well as
agricultural commodities including cocoa, coffee, cotton, ethanol, orange juice, wood pulp and sugar, in
addition to currency and index futures and options. ICE® conducts its energy futures markets through its U.K.
regulated London-based subsidiary, ICE Futures, Europe’s leading energy exchange. ICE Futures offers
liquid markets in the world’s leading oil benchmarks, Brent Crude futures and West Texas Intermediate
(WTI) Crude futures, trading nearly half of the world’s global crude futures by volume of commodity traded.
ICE conducts its agricultural commodity futures and options markets through its U.S. regulated subsidiary,
the New York Board of Trade®. For more than a century, the NYBOT® has provided global markets for food,
fiber and financial products. ICE was added to the Russell 1000® Index on June 30, 2006. Headquartered
in Atlanta, ICE also has offices in Calgary, Chicago, Houston, London, New York and Singapore. For more
information, please visit www.theice.com and www.nybot.com.
