CME CME Group Inc

On Monday, IntercontinentalExchange Inc. (ICE) announced its plan to launch 49 global over-the-counter (OTC) cleared energy products from May 23, 2011. Along with the products announced yesterday, ICE will now be offering over 470 OTC energy contracts, including more than 375 new cleared OTC contracts since the launch of ICE Clear Europe in November 2008.

Accordingly, the energy contracts include global oil and refined petroleum products along with North American natural gas and power. ICE has scheduled to launch cleared OTC energy contracts in order to support its market holding. The company is aware of changing market needs, through its hedging strategies, product modification and innovation, in turn supporting volumes and top-line growth in the long run.

Last month, ICE had also announced the launch of 19 global OTC cleared natural gas products from May 16, 2011. The company even launched 15 global OTC cleared oil products in April this year, while in February, ICE had initiated the trading of 21 new gas oil contracts and three new contracts in US thermal coal futures through ICE Clear Europe. In the last couple of months, ICE announced plans to launch an additional 100 OTC products to propel growth in the long term.

Given that oil and petroleum are 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 its competitive leverage in the derivatives and OTC areas, where the presence of arch rivals CME Group Inc. (CME) and CBOE Holdings Inc. (CBOE) provide 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 on 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 is bringing about 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 Monday, the shares of ICE closed at $118.93, up 1.1%, in the New York Stock Exchange.

 
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