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.
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.
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.