IntercontinentalExchange: 'Growth Exchange Without the Multiple' 4 comments
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IntercontinentalExchange (ICE) was featured as Barron's cover story this weekend in an extremely positive three page article detailing three big trends driving securities trading. The first is the shift from manual to electronic systems, which made trading faster and cheaper, swelling volume. Globalization is a second factor, and now there's the migration of analog products (credit default swaps) that trade over the telephone onto listed, transparent markets like exchanges.
ICE merged with a clearing business owned by big Street firms, including Bank of America (BAC), Credit Suisse (CS), Deutsche Bank (DB), Goldman (GS) and JPMorgan (JPM). While competing platforms may well co-exist, Street firms are likely to steer customer orders to the destination in which they have a vested interest: ICE.
Investors may be valuing ICE on its old commodities footprint, while overlooking its push into broader asset classes and to self-clearing, notes Morgan Stanley analyst Patrick Pinschmidt. He described ICE as "a growth exchange without the multiple."
Analysts caution about a forthcoming decline in trading volumes, though the anxiously-awaited slump has yet to arrive: U.S. stock-trading volume is up 54% this year, including a 47% year-over-year rise in November, although weaknesses are emerging, like November's 21% ebb in options volume. Fixating on volume detracts from a more apt emphasis on profit. "I run the exchange for EPS growth, and not necessarily volume growth," says ICE CEO Jeffrey Sprecher. For example, ICE just clinched an exclusive pact to list popular Russell Index futures, and analysts estimate that each 25,000 increment in daily volume will boost per-share earnings by three cents.
Disclosure: Author holds a long position in ICE
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This article has 4 comments:
NYSE Euronext merging with DeutscheBorse(rumor) might be a better by due to their cross Atlantic presence, and their product mix.
The real damage to futures volume has not been hard commodities. It's been in the interest rate futures. Those contracts are the ones that will be poised to grow the fastest when the market recovers.
This is the intellectual underpinning for every analyst trashing the entire sector-and guess what? It appears to be wrong, especially for equities and options. NYX at a P/e of 7? CME at a p/e 12? NDAX at a p/e of 11?
The entire sector should be bought when the fallacy of the statement above becomes apparent.
ICE has a 2% share of US futures business, is trying to get all of its clearing in-house, and is hardly diversified. It has partnered with the Henry Paulson gang: pajamasmedia.com/blog/...
for clearing of CDS, so no doubt that it will become the de-facto bucket-shop for the investment bankers as they try to keep the CDS market opaque.
Transparency is what is needed, especially now after the IB's created this mess that Washington calls the "Wall Street Bailout" seekingalpha.com/artic...
Transparency is the linchpin of CME's proposal.
ICE, currently sports a market-cap of $5 billion. CME, on the other hand, has a market cap of just $11.9 billion.
In my book, in relative value, either ICE is way overpriced, or CME is way underpriced - perhaps both? Otherwise, it is hard to justify these market caps in any logical manner.