Intercontinental Exchange (ICE), the Atlanta-based electronic futures and over-the-counter (OTC) exchange announced its $1 billion offer to acquire the New York Board of Trade (NYBOT) exchange late last week.

The merger will combine ICE's highly sought after energy products with NYBOT's robust lineup of soft commodities including sugar, coffee, cocoa and frozen orange juice. For investors interested in investing in commodities without bearing the risk of trading in futures contracts, ICE provides a place of refuge.

ICE's earnings are driven by the smooth flow of commissions generated on each trade regardless of rising or falling commodities prices. ICE is broken out into three business segments including futures markets, OTC markets and a market data segment.

ICE revenues for the first six months of the year totaled $123.9 million, up 78% to from the same period a year ago. Increased price discovery and risk management of energy markets pushed futures contracts volumes higher.

The OTC market, while not as mature as the futures market, is gaining in popularity with the introduction of a clearinghouse that will ensure that there is a contract buyer for every seller and vice versa. The introduction of the clearinghouse offers a level of comfort to traders who are seeking more standardized contracts in the OTC marketplace.

icerev2r_092006.gif

Futures and OTC trading markets exist to provide price protection to both producers and consumers of the world's valuable resources. ICE has been focused exclusively on taking advantage of the acceptance of electronic trading platforms to facilitate the meeting of buyers and sellers in contracts for electricity, natural gas, crude oil and precious metals. In April 2005 ICE shut down its open-out-cry exchange in London in favor of its electronic platform.

Under the terms of ICE's agreement the NYBOT will maintain its open-out-cry trading system featured in the 80's classic film "Trading Places". The combination of ICE's electronic trading and NYBOT's open-out-cry system is currently seen on the New York Stock Exchange (NYX) and the Chicago Exchanges.

icerev1r_092006.gif

ICE stock is up almost 95% since the beginning of the year, trading as high as $82.40 earlier this year in May. The buzz on Wall Streets is full of positive sentiment over the proposed merger. Analysts expect earnings to improve to as high as $4 per share by 2008 from improved trading volumes associated with the addition of NYBOT products on the ICE electronic platform.

Geopolitical events, weather, supply and demand expectations, number of trading days and seasonality all affect trading volumes that are the key to ICE's earnings. While these factors have been in a constant state of flux, futures contract trading volumes have been on a steady rise over the past eight years at ICE Futures.

Living in an ever-changing world means that the opportunity for volatility to strike is always present. ICE is becoming a major player in providing products for commodities producers and consumers to temper the price swings of the today and the unpredictability of tomorrow.

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  2. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  3. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  4. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  5. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  6. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  7. Stock Analysis

    The Safest Stocks You Can Invest in Right Now

    These stocks are likely to hold up better than others in a bear market, but there's a twist.
  8. Investing Basics

    5 Reasons to Expect Lower Stock Returns

    Lower stock returns are likely here to stay for some time. Here are five reasons why.
  9. Investing Basics

    What to Cut From Your Portfolio Right Now

    Owning stocks may shortly become too scary for your portfolio. Here's why, and here are some alternatives.
  10. Personal Finance

    Careers: Equity Research Vs. Investment Banking

    Equity research is sometimes viewed as the unglamorous, lower-paid cousin to investment banking. In this article, we compare the two careers.
RELATED TERMS
  1. Inverse Transaction

    A transaction that can cancel out a forward contract that has ...
  2. Best To Deliver

    The security that is delivered by the short position holder in ...
  3. Exchange Traded Derivative

    A financial instrument whose value is based on the value of another ...
  4. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  5. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  6. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!