Yesterday, operator of regulated futures exchanges
IntercontinentalExchange Inc.
(
ICE
) announced its plan to launch 26 fresh cleared over-the-counter
(OTC) energy products. With the announcement of these contracts
yesterday, the company will now be offering over 700 OTC energy
contracts and includes more than 608 new cleared OTC contracts
since the launch of ICE Clear Europe in November 2008.
Accordingly, the energy contracts include global crude oil and
refined petroleum products coupled with North American power and
natural gas liquids. ICE also introduced American-style options on
futures for heating oil and RBOB gasoline on ICE Futures Europe.
All the new swap and options contracts will begin trading on
April 30, 2012, subject to regulatory approval.
In an effort to strengthen its market holding, ICE is employing
its strategy to launch cleared OTC energy contracts. The company is
aware of changing market needs, and attempts to evolve through its
hedging strategies, product modification and innovation, in turn
supporting volumes and the top-line growth in the long run.
So far, ICE has launched about 35 OTC cleared energy contracts
in this year. Last year, the company had formerly announced that it
will launch more than 100 OTC products, which will propel growth in
the long term. However, about 142 OTC cleared energy contracts
alone were launched in the second half of 2011.
ICE launched 68 global OTC cleared natural gas products in May
2011. The company even launched 15 global OTC cleared oil products
in April last year, while in February 2011 ICE had also initiated
the trading of 21 new gas oil contracts and three new contracts in
US thermal coal futures through ICE Clear Europe.
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. Particularly, ICE's
newly-introduced American-style options on futures for heating oil
and RBOB gasoline directly compete with CME Group's NYMEX.
Alongside, the company's recently announced the introduction of
non-deliverable forward foreign exchange (
FX
) OTC contracts to its clearing services, an official launch of
which is scheduled in the second quarter of 2012.
ICE has been growing through product novelty and expansion in
the global emerging markets over the past few quarters. Strong
trading volumes in ICE's crude oil and energy futures and OTC
markets, new product introduction along with increase in credit
default swap (CDS) clearing revenues drove the top- and bottom line
in 2011. The strengthening of this portfolio is further expected to
drive growth in the future.
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. These factors are
expected to drive strong earnings potential in the long run. Hence,
ICE carries a Zacks Rank #1, implying a short-term Strong Buy
rating, while the long-term stance remains Outperform.
CBOE HOLDINGS (
CBOE
): Free Stock Analysis Report
CME GROUP INC (
CME
): Free Stock Analysis Report
INTERCONTINENTL (
ICE
): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research