CME CME Group Inc

Last Thursday, IntercontinentalExchange Inc. (ICE) announced its plan to launch 19 global over-the-counter (OTC) cleared natural gas products from May 16, 2011. Along with the products announced last week, ICE will now be offering over 420 OTC energy contracts, including more than 325 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.

In the middle of this month, ICE launched 15 global OTC cleared oil products, while last month, the company had 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 announced plans to launch an additional 100 OTC products that will propel growth in the long term.

Given that natural gas is a significant power generating medium globally, such energy contracts strengthen ICE’s global product portfolio. Additionally, continued product innovation and licensing agreements give way to new contracts and add 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 the presence of arch rivals CME Group Inc. (CME) and CBOE Holdings Inc. (CBOE) provides a challenging operating environment.

Growth through product novelty and expansion in the global emerging markets is very crucial for ICE, given the ongoing regulatory turmoil that sets limits for speculative market participants and poses risk of unsatisfactory financial yield for operationally successful credit default swap (CDS) clearing initiative.

Furthermore, the ongoing consolidation activity in the industry has been putting 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.

On April 21, the shares of ICE closed at $122.18, up 1.3%, in the New York Stock Exchange.

 
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