CME CME Group Inc

On Tuesday, IntercontinentalExchange Inc. (ICE) announced its plan to launch 18 fresh over-the-counter (OTC) cleared energy products from August 1, 2011. ICE will now be offering over 530 OTC energy contracts, along with the products announced yesterday, comprising more than 435 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 coupled with North American natural gas liquids. ICE has scheduled to launch cleared OTC energy contracts in order to support its market holding. 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.

Last month, ICE initiated the trading of 48 global OTC cleared energy contracts as well as launched 68 global OTC cleared natural gas products in May this year. The company even launched 15 global OTC cleared oil products in April this year, while in February, 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. Following its formerly announced business plans, ICE launched an additional 100 OTC products in the past few months, which is expected to propel growth in the long term.

Given that oil, natural gas and petroleum are significant power generating media globally, such energy contracts strengthen ICE’s international product portfolio. Additionally, continued product innovation and licensing agreements give 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.

Growth through product novelty and expansion in the global emerging markets is very crucial for ICE, given the ongoing regulatory turmoil that sets limit 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 exerting 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. These factors are expected to drive strong earnings potential in the long run.

On Tuesday, the shares of ICE closed at $125.32, down 0.2%, on the New York Stock Exchange.

 
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