CME CME Group Inc

Yesterday, IntercontinentalExchange Inc. (ICE) announced its plan to launch 21 fresh over-the-counter (OTC) cleared energy products. The new forward contracts will begin trading on August 29, whereas the options will be launched on September 19, 2011.

ICE will now be offering over 550 OTC energy contracts, along with the products announced yesterday, comprising more than 445 new cleared OTC contracts since the launch of ICE Clear Europe in November 2008.

Accordingly, the energy OTC contracts include North American emissions products. ICE has scheduled to launch cleared OTC energy contracts in order to support its market holding. The company plans to start listing these contracts related to emissions reductions along with a sulfur-based contract in New Jersey, Massachussetts, Connecticut and California.

This is based upon the company’s decision to shut its US emissions derivatives platform, the Chicago Climate Futures Exchange. The step is taken to avoid loss and prepare for situations in case the federal carbon-reduction plan gets stalled, which is quite probable.

The Chicago Climate Futures Exchange is a part of Climate Exchange plc acquired by ICE last year. Additionally, continued product innovation and licensing agreements give way to new contracts and add significant volume. 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.

Earlier this month, ICE launched 18 OTC cleared energy while last month, the company initiated the trading of 48 global OTC cleared energy contracts. ICE 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 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. Following the announcement of its business plans, ICE launched an additional 100 OTC products in the past few months, which are expected to propel growth in the long term.

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.

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 also drove the top- and bottom-lines during the second quarter of 2011.

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 Monday, the shares of ICE closed at $103.91, down 5.7%, on the New York Stock Exchange.

 
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