Intercontinental Exchange

Intercontinental Exchange (ICE) Explained

Have you heard of the Intercontinental Exchange? A few decades ago, stock market transactions were done in an open outcry method. The method consisted of floor traders shouting and using hand signals to buy and sell stocks and other investment vehicles.

The place where everything took place was called a pit. As we revolutionized our ways of trading in the stock market, some companies were catalysts in those changes. Electronic trading became the method of choice as it was much quicker and more efficient.

One of the companies that helped during this period of change is the Intercontinental Exchange (ICE). ICE also grew and expanded its operations thanks to mergers and acquisitions.

Today, ICE is the third-largest exchange group in the world. It trails the Hong Kong Exchanges and Clearing Limited (HKEX) and the CME Group Inc. Let’s learn more about ICE.

Chart by TradingView

The Intercontinental Exchange (ICE) was founded in 2000 in Atlanta, Georgia, by a powerplant developer named Jeffrey Sprecher. The company’s first move was to acquire an energy commodity exchange. It aimed to establish an efficient and transparent over-the-counter internet-based energy trading platform.

The open outcry method was quickly becoming inefficient and archaic. When ICE was created, it was backed by Deutsche Bank, BP, Goldman Sachs, Morgan Stanley, Shell, Societe Generale and Total. In short, multinational financial and energy companies. 

When the new exchange was created, it increased price efficiency, transparency, and liquidity and lowered overall costs. Furthermore, it quickly expanded from its original energy products.

On top of crude and refined oil, emissions, natural gas, and power, the exchange added soft commodities such as coffee, cotton, and sugar. It also added foreign exchange and equity index futures to its repertoire. 2005 The Intercontentinal Exchange became a publicly traded company (NYSE: ICE). The following year, it was added to the Russell 1000 Index. A series of acquisitions and growth ensued.

Intercontinental Exchange

Growth of the Intercontinental Exchange

One of the major catalysts for the Interconentintal Exchange came after the 2008 financial crisis. Sprecher created ICE Clear Credit, a clearing house for credit default swaps and a derivatives clearing house. ICE Clear Credit provided a much-needed risk management service for the stock market. The Interconentintal Exchange was becoming a dominant name in the industry. Its business increased and created new opportunities in different markets.

International Petroleum Exchange IPE (2001): Now ICE Futures Europe is an entirely electronic energy futures platform. The once London-based open outcry trading floor is now closed.

New York Board of Trade NYBOT (2007): A chemical commodity market.

Winnipeg Commodity Exchange WCE (2007): Now, it is renamed ICE Futures Canada. It was the first North American agricultural futures exchange to trade exclusively electronically. 

Creditex (2008): A leading broker for credit default swaps (CDS) and bonds. Today, ICE takes care of approximately 95% of all CDS transactions worldwide. A CDS is a contract that protects investors against a company’s defaulting bonds. 

TSX Natural Gas Partnership (2008): ICE partnered with the Canadian company to offer the clearing and settlement of physical OTC natural gas contracts.

Acquisitions

Climate Exchange (2010): Trading CO2 emissions became a market when climate change was deemed a threat. Companies could trade their CO2 emission coupons. ICE took advantage of the opportunity and entered the market. 

NYSE Euronext (2013): Renamed to ICE Futures Europe. This transaction was initially with NASDAQ but was voided due to monopoly issues. ICE added a transatlantic multinational financial services company to its portfolio. The company also added the worldwide renowned NYSE to its portfolio. 

SuperDerivatives Inc (2014): Risk management analytics was essential to the new technological world. ICE upgraded its financial data and valuation component.

Interactive Data Corporation IDC (2015): Another financial market data, analytics, and trading solutions company.

Standard & Poor’s Securities Evaluation SPSE (2016): ICE acquired a renowned credit rating agency.

BofA Merrill Lynch Global Research Index Platform BofAML (2017): ICE Acquired a family of fixed-income volatility indices. Globally, it was the second most used fixed-income index by AUM.

Mercosop Holding Inc (2018): US-based mortgage loans.

Ellie Mae (2020): The company processed 35% of US mortgage applications.

Black Knight (2022): Integrated mortgage and real estate technologies. 

Various Markets

The Intercontinental Exchange now operates in various markets thanks to its many acquisitions. They include futures and options in agriculture, financials, crude and refined oil, electricity, natural gas, and liquids. ICE uses OTC instruments in crude and refined oil, natural gas, and electricity.

According to many sources, the company is also close to offering Bitcoin and cryptocurrency futures. ICE operates in over 70 countries and markets in North America, Europe, and Asia.

Furthermore, its technology department is among the market leaders. It operates ICE Data Services. The Interconentintal Exchange is among the top 50 companies “best positioned to adapt and deliver growth in a complex environment.”.

Is ICE Stock a Good Investment?

Is the Intercontinental Exchange stock a good investment? The company’s revenues depend directly on the number of transactions on the stock market. Since 2000, there has been consistent growth YoY.

During periods of economic uncertainty like the 2008 crash and the COVID months of 2020, and since Russia invaded Ukraine, there have been fewer transactions across all stock markets. Hence, the company was hugely affected due to its business model.

Despite all the negativity surrounding the stock markets this year, ICE’s revenues are up from last year. Transaction-based expenses are down, and the business as a whole grew and posted financials that were better than expected. Analysts are expecting more growth in the quarters to come.

Real Estate Acquisitions

ICE’s most recent acquisition of Black Knight (NYSE: BKI) for $13.1B solidifies its presence in the US real estate market. In the last few years, the company acquired other businesses working in that industry.

The transaction isn’t expected to close before 2023. It will immediately impact ICE’s revenues, and shareholders will also benefit. Furthermore, the company has the technology to run this business efficiently. Lastly, the company will please its investors with a modest yearly dividend yield of 1.57%.

As a whole, Intercontinental Exchange is a solid investment. The company’s footprint is in a variety of stock market industries.

As long as there is a stock market, the company will benefit. When new industries are created, you can be sure that they will attempt to put their foot through the door. 

Final Thoughts: Intercontinental Exchange

To conclude, the Intercontinental Exchange owns a variety of stock market industries spanning 70 countries. It is also possible to invest in ICE. Its ticker is NYSE: ICE.

Since its creation, the exchange has expanded its presence in new markets and countries. The number of yearly transactions across all exchanges grows yearly.

ICE’s business will grow since they are behind many transactions being executed and cleared. Its growth may be modest compared to other successful companies, but it remains a good investment in the long term.

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