IntercontinentalExchange timeline
2000 – IntercontinentalExchange founded and focuses on over-the-counter energy and precious metals trading
2005 – Company goes public. Annual revenue of $156 million
2007 – Completes $1 billion acquisition of the New York Board of Trade, where trades are called out on the floor. Later, converted it to an electronic exchange. Fails in attempt to buy the Chicago Board of Trade for more than $11 billion.
2011 – Annual revenue of $1.3 billion. Joins with the parent of the Nasdaq stock exchange in an attempted hostile takeover of NYSE Euronext, the parent of the New York Stock Exchange. The attempt fails.
Dec. 2012 – Announces plan to acquire NYSE Euronext for $8.2 billion. Since then, the deal's value has increased to $10.9 billion.
Oct. 30 — NYSE Euronext deal, which was expected to close Nov. 4, was delayed. ICE awaits final regulatory approval in Europe.
Outside financial circles, you won’t find a lot of people who have heard of IntercontinentalExchange, known as ICE. But with its $10.9 billion acquisition of the storied stock exchange, ICE is firmly stepping into the spotlight.
ICE’s buyout of NYSE Euronext, the company that owns the stock exchange, will bring more jobs to Atlanta and boost its stature as a financial hub. It also further raises ICE founder and CEO Jeff Sprecher’s profile, giving him a platform from which to speak about where he thinks the current trading system is broken.
“There are obvious problems that need to be fixed,” Sprecher said of American stock markets. “The market has become too fragmented and the market has become too opaque. And the incentives that exist in the market for traders have been skewed so that it may not always be about getting the seller the best price and the buyer the best price.”
Although the changing ownership of the NYSE has garnered most of the headlines, there is another piece of the deal — a European exchange called Liffe, where interest rate futures are traded — that has really caught Sprecher’s eye.
ICE, whose own stock is traded on the NYSE, primarily runs futures markets. There, buyers and sellers — mostly sophisticated and institutional investors — can make bets on what will happen to the price of sugar, cotton or Brent Crude oil.
The company acts like eBay for those markets. It makes its money by charging a commission as it matches buyers and sellers for everything from cocoa to coal. The business also has a PayPal-like element, to ensure traders get paid.
Traditionally, these transactions have taken place on a trading floor, with people hollering buy or sell orders into a swarm of other traders — think of the pivotal scene in the movie “Trading Places,” where frozen concentrated orange juice futures are swapped.
But ICE has led the advent of electronic markets. Frozen concentrated orange juice transactions now take place on its far-flung servers.
Changing the exchanges
ICE was founded just 13 years ago by Sprecher, a former hobby race car driver who bought an Atlanta company as he looked for a way to trade energy in California, where he’d previously started a power plant development firm.
Sprecher commuted for years between his Atlanta business and a Beverly Hills bachelor pad. He eventually moved here and got married. The initial energy-trading business was concentrated in Houston, New York and Chicago. The company soon bought the International Petroleum Exchange in London. It was more advantageous to be in the Eastern time zone, so the headquarters for the growing business remained Atlanta.
Sprecher has acquired about a dozen other exchanges. ICE’s revenue totaled $723.5 million in the first half of the year.
“I’ve got to hand it to Jeff Sprecher,” said Larry Tabb, CEO of the Massachusetts financial markets research company Tabb Group. “It’s a real coup for him. It’s great… . He’s a hell of a visionary.”
Sprecher, now, is using that vision to re-imagine how investors will trade stocks in the future.
The problem, he said, is that the stock market is too complex. It’s become confusing for individual investors, who are often harmed by the machinations of professional traders.
Sprecher is reluctantly outspoken about the problems he sees. He thinks it is the place of the NYSE — and therefore, his responsibility — to bring them to the forefront.
“It’s like we allowed everybody to build a road, their own road, so we had no planning department,” Sprecher said. “So everybody built a road directly from their house to their destination.”
But he has so far been vague on what, exactly, should change, saying he doesn’t want to redecorate the house before its current owners have left. There are some changes ICE can make unilaterally, he said, to simplify its technology and market structure. But more details will not come until after the deal closes.
“I’ve had lots of private conversations since announcing this deal…there’s a willingness to see if we can figure out what would make it better,” he said. “I feel the market is ripe for change. And maybe a new owner of the NYSE is symbolic, a symbolic reason to start that change.”
The changes could make trading prices more transparent for individuals, and protect them from so-called flash-crashes, for example, where stock prices rapidly fall, then abruptly rebound.
David Frenk, director of research at the non-partisan financial reform group Better Markets, agreed that fragmentation and high-frequency trading have created problems in the stock market. But the futures markets ICE and Sprecher usually operate in have their own issues with transparency, he said. Power there is concentrated in a few places.
There are dozens of places to buy or sell stocks. Whether Sprecher is able to make actual changes to the way the market operates remains to be seen, he said.
“It’s a question of having a fair game, of it not being rigged,” he said. “I would hope to see a bona fide effort.”
Hoping for higher interest rates
Atlanta ownership of the New York Stock Exchange has captured imaginations, but Sprecher was initially attracted to a futures exchange called Liffe.
That exchange, owned by NYSE Euronext, is the largest financial product exchange in London. It hosts the FTSE, London’s equivalent of the S&P 500.
It is also where interest rate futures are traded, including one called Euribor. It’s an estimate of what the London Interbank Offered Rate, or Libor, will be a month in the future.
Since the deal was announced, NYSE Euronext has also acquired the rights to Libor, which is used as a point of reference for everything from mortgages to the U.S. dollar. A scandal last year showed that during the financial crisis, banks manipulated Libor, the risk-free interest rate banks use to make loans to one another.
That leaves ICE with the task of rehabbing the rate’s reputation.
The appeal to ICE, Sprecher said, is the expectation that as rates rise in the coming years, more people will make bets on them.
Now, he said, people are putting their money in places they shouldn’t because it is cheap to do so. When interest rates go up, they will scramble to make counter-bets — and that will pay off for ICE when people use the Liffe exchange to make those bets.
“I think it’s a good time to get into the business because that hedging activity hasn’t really started yet,” he said. “When that happens … there’ll be kind of a mad dash.”
Conversations about Libor, which is published daily, also give ICE opportunities to communicate more with customers, Sprecher said.
David Weiss, a senior analyst at Aite Group, called Liffe a "linchpin" of the purchase. Tabb, in Massachusetts, said the upside potential for Liffe alone is "a huge positive."
A base in Atlanta
What does it all mean for Atlanta?
ICE will have dual headquarters, here and in New York. ICE recently bought a new headquarters building off I-285 near Sandy Springs, and Sprecher said he has no plans to leave.
“It’s a great place to be headquartered because of the access from Atlanta to the rest of the world,” he said. “I find Atlanta a great place to run a global business.”
Clifton Green, an associate professor of finance at Emory’s Goizueta Business School, said having the New York Stock Exchange owned locally may bring more finance jobs to the city.
The biggest impact on Atlanta, Weiss said, will be the legacy ICE is creating in the markets as it changes human-fueled trading platforms into electronic ones. Sprecher said he intends to keep people on the floor of the New York Stock Exchange — and may add more. But his business is on the precipice of transformation. Sprecher is the one directing it.
“Five years from now, I think we’re going to say, wow, this is the beginning of where the markets started to change,” Weiss said. “This one, I think, is going to be a big deal.”
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