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. Options & Futures

    What Does Quadruple Witching Mean?

    In a financial context, quadruple witching refers to the day on which contracts for stock index futures, index options, and single stock futures expire.
  2. Options & Futures

    4 Equity Derivatives And How They Work

    Equity derivatives offer retail investors opportunities to benefit from an underlying security without owning the security itself.
  3. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  4. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  5. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  6. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  7. Options & Futures

    Five Advantages of Futures Over Options

    Futures have a number of advantages over options such as fixed upfront trading costs, lack of time decay and liquidity.
  8. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  9. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  10. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
RELATED FAQS
  1. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. Can mutual funds invest in options and futures? (RYMBX, GATEX)

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  4. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  5. 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 >>
  6. 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 >>
COMPANIES IN THIS ARTICLE
Trading Center