Yesterday, IntercontinentalExchange Inc. (ICE) announced its plan to launch 15 global over-the-counter (OTC) cleared oil products from April 4, 2011. Along with the products announced yesterday, ICE will now be offering over 405 OTC energy contracts, including more than 310 new cleared OTC contracts, since the launch of ICE Clear Europe in November 2008.
Accordingly, ICE has scheduled to launch cleared OTC energy contracts in order to uphold its market holding. ICE remains aware of changing market needs, through its hedging strategies, product modification and innovation, in turn supporting volumes and the top-line growth in the long run.
Last month, ICE had also initiated the trading of 21 new gas oil contracts and three new contracts in US thermal coal futures from February 21 onwards, launched through ICE Clear Europe. In the last couple of months, ICE promptly announced plans to launch an additional 100 OTC products that will propel long-term growth.
Given that oil is a significant power generating medium globally, such energy contracts strengthens ICE’s global product portfolio. Additionally, continued product innovation and licensing agreements gives way to new contracts and adds significant volume.
The launch of contracts by ICE in the rapidly expanding energy sphere further boosts the company’s competitive leverage in the derivatives and OTC areas, where presence of arch rivals CME Group Inc. (CME) and CBOE Holdings Inc. (CBOE) provide a challenging operating environment.
For ICE, growth through product novelty and expansion in global emerging markets is very crucial, given the ongoing regulatory turmoil that set limits for speculative market participants and poses risk of unsatisfactory financial yield for operationally successful credit default swap (CDS) clearing initiative.
Further, the ongoing consolidation activity in the industry has been putting adequate competitive pressure on the companies. Like other market peers, ICE also bears sufficient risk on this front.
Overall, we believe that based on the current volatile macro environment, ICE has a strong revenue-generating product portfolio, high earnings visibility, consistent cash generation, disciplined investment and limited balance-sheet risk. In the long run, these factors are expected to drive strong earnings potential.
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