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IntercontinentalExchange, Inc. (NYSE:ICE)

Q4 2008 Earnings Call

February 10, 2009, 8:30 am ET

Executives

Kelly Loeffler – VP, IR and Corporate Communications

Scott Hill - CFO

Jeff Sprecher - Chairman and CEO

Analysts

Richard Repetto - Sandler O'Neill & Partners

Alex Kramm - Barclays Capital

Kenneth Worthington - JPMorgan

Howard Chen - Credit Suisse

Mike Carrier - UBS

Niamh Alexander – KBW

Dan Fannon - Jefferies & Company

Jonathan Casteleyn – Wachovia Securities

Michael Vinciquerra - BMO Capital Markets

Patrick O'Shaughnessy - Raymond James

Patrick Pinschmidt - Morgan Stanley

Operator

Good morning ladies and gentlemen and welcome to the Fourth Quarter and Year End 2008 IntercontinentalExchange Earnings Conference Call. This call is being recorded. I would now like to turn the presentation over to your host for today's call, Ms. Kelly Loeffler, Vice President of Investor Relations and Corporate Communications. Please proceed.

Kelly Loeffler

Good morning to obtain a copy of the company's fourth quarter and year end earnings release and presentation please visit the investor section of our website at theice.com. These items will be archived and our call will be available for replay.

Before we begin you should be aware that our comments may contain forward-looking statements, that represent our current judgment, and are subject to various risks, assumptions, and uncertainties, as outlined in the company's filings with the SEC. Including our Form 10-K that we expect to file this week. For a description of the risks that could cause our results to differ materially from those that are described from the forward-looking statements. Please refer to these filings. Actual results may differ materially from those that are expressed or anticipated in any forward-looking statement.

We will also discuss adjusted net income adjusted earnings per common share, adjusted EBITDA and adjusted operating expenses. These are non-GAAP financial measures that exclude certain non-operating charges that we believe are not reflective of our normal operating performance. A reconciliation of adjusted net income and adjusted earnings per common share to the equivalent GAAP results an explanation of why we deem these non-GAAP measures meaningful appear on our press release and earnings presentation. The reconciliation of adjusted EBITDA and adjusted operating expenses to the equivalent GAAP results and an explanation of why we deem these non-GAAP measures meaningful appear in our presentation.

With us today are our Chairman and CEO, Jeff Sprecher, Scott Hill, Chief Financial Officer, and Chuck Vice, President and Chief Operating Officer. At the conclusion of the prepared remarks, we will take your questions.

I will now turn the call over to, Scott.

Scott Hill

Thanks, Kelly and thanks to everyone for joining us this morning. We are pleased to report solid fourth quarter results capping off a strong year despite a challenging economic environment.

We delivered our fourth consecutive year of record consolidated revenue net income and cash flow. In addition to record financial performance ICE accomplished each of the strategic objectives we established in 2008. These initiatives included achieving integration and synergies related to our acquired businesses.

The continued evolution of our technology infrastructure the launch ICE Clear Europe, the transition of Russell Index Futures and new strategic acquisitions.

During 4Q08 and for the fourth consecutive quarter more than $100 million contracts were traded in ICE's marketplace was roping in the highest quarterly revenues in our history. We also established our eighth consecutive record quarter in our Market Data segment.

We believe that these significant accomplishments particular amid the challenging operating environment meets to our focus on winning customer needs and executing on innovative strategies.

Let's turn to slide 4 and review our fourth quarter performance. ICE's consolidated revenues of $207 million rose 30% over the last year's fourth quarter. Consolidated operating income was $97 million and our operating margin was 47%. Excluding a $16 million non-cash charge related to our investment in NCDEX, non-GAAP net income was $60 million and earnings per share were $0.82.

You may recall that in the fourth quarter of 2006 we invested $37 million or an 8% stake in the National Commodities and Derivatives Exchange or NCDEX in India.

Given the change in valuations for publicly traded exchanges and the possibility that we like other investors maybe required to reduce our stake to 5% due to recently enacted Indian law, we believe that it was prudent to reduce the carrying value of our investment to $21 million. This charge is reflected in the other expense line of our 4Q '08 income statement.

Finally, they were not reflected on the chart, our tax rate for the fourth quarter on a pro-forma basis excluding the impact of the NCDEX charge was 38%. This is roughly 2 points above the tax rate in prior quarters this year with each point roughly worth a penny per share of earnings in the quarter. This increase largely reflects the year end true up in the fourth quarter to our final full year tax rate of 36%.

While our 2008 tax rate remains much lower than many of our peers, it was on the high-end of our guidance. This was primarily due to an increase in the percentage of income taxable in the US at higher statutory rate, particularly New York.

Looking forward to 2009, we anticipate that the combination of our expected business mix and lower tax rates in some of our non-US jurisdictions will result in a tax rate in 34% to 36% range.

Moving next to slide 5, we will detail each of our three business segments. During 2008, 484 million contracts were traded in our Futures and OTC energy markets surpassing last year's volume by 30%. This helped record revenue and operating income in 2008.

The pie chart on this slide shows the increased product diversification we have achieved, which has allowed us to gain a foothold in new large markets including equity indexes, foreign exchange, agricultural commodities and credit derivatives. You can see that our transaction revenue is split about evenly between Futures and OTC. The details of our revenue expense category that is shown on slide six.

Fourth quarter transaction revenues totaled $178 million, up 34% year-to-year. This includes nearly $36 million of revenue from Creditex, $57 million from our OTC Energy markets and $86 million from Futures transaction. ICE's Market Data revenues increased 16% to a record $27 million for the fourth quarter.

On the expense side, fourth quarter consolidated operating expenses were $110 million, compared to $63 million in the fourth quarter of 2007. The $47 million increase in quarterly operating expenses was primarily driven by $39 million of expenses related to Creditex and $6.5 million related to amortization of the Russell license agreement. The fourth quarter was the first full quarter for both of these expenses.

As we discussed when we announced Creditex transaction and just as we have with all of our prior acquisitions we have already identified opportunities to improve the operating leverage of Creditex.

Given the current economic environment our efforts to operate more efficiently extend across our entire business. We will partly manage all discretionary spending and resource group. We remain however a growth company. You will see us continue to invest in a disciplined manner such that any expense growth continues to reflect and support our strategic initiatives.

Starting with slide 7, I will provide additional detail on our Futures and OTC segment. Average daily volume, or ADV, for ICE Futures Europe was 569,000 contracts, up 3% versus 4Q '07. Fourth quarter rate per contract or RPC, for Energy Futures was $1.42.

Our RPC included execution fees in two months worth of clearing revenue in the quarter. In addition to the benefit of in-house clearing growth in Energy Futures was driven by crude and refined oil Futures product as well as our newer coal and emissions market.

We continue to see strength in our Energy Futures business in January 2009 with ADV up 14% from a year ago. This was driven by our benchmark Brent and Gas Oil contracts and was great way to start the New Year despite challenging comparison.

The three months growing average RPC in January which now reflects three months of clearing revenue was $1.54 that ICE Futures Europe.

Let's move to slide 8, to discuss the performance of our North American Futures business during 4Q. ADV was 362,000 contracts per day at 65% year-to-year. This strong growth was driven by trading of our Russell Index futures and options contract.

4Q RPC for agricultural commodity futures was stable at $2.25 and RPC for financial future averaged $0.78. Last week we reported the January average daily volume at ICE Futures US was down 24%.

The first quarter of '09 will be compared against what remains the strongest quarter on record for ICE Futures US. However, the difficult compare will be mitigated somewhat by Russell volume.

Also while open interest in our Ag products decline due to the challenging market conditions in 2008 we are pleased overall with the growth at ICE Futures US. Since we acquired the New York Board of Trade two years ago Russell futures and options now traded exclusively on our exchange. Ag and soft commodity open interest is up 19% and we have achieved double digit compound growth in our global benchmark sugar contract.

And all of this growth is now supported by a much leaner operating model.

Turning to our OTC business on slide 9, you can see that this segment now includes Creditex revenue for a full quarter. OTC transaction revenues totaled $92 million in 4Q '08 an increase of 54% compared to 4Q '07.

In ICE's OTC energy business and unprecedented 95% of our contract volume was cleared during the fourth quarter. And we have launched or will launch by the end of the current quarter over 70 new cleared energy products.

For the fourth quarter, average daily commissions in our OTC energy markets were $872,000 per day, this is a 4% decline compared to 4Q '07 when we established what was at that time a quarterly record of $913,000.

However, with the exception of 2007, the fourth quarter had typically been the slowest quarter due to the holiday season. This year's fourth quarter was particularly impacted given the tough comparisons and typical seasonal slowdown exacerbated by very challenging global market conditions.

However our OTC energy activity has picked up meaningfully, in January and in the February 2009 while the year-over-year comparisons and market conditions remained challenging.

Our OTC energy performance to the first part of the New Year gives us confidence that the severe dislocation in the fourth quarter was not indicative of any new trend or run rate.

Turning to Creditex, CDS transaction revenues total $36 million roughly flat compared to Creditex's standalone fourth quarter 2007 revenue.

However unlike the OTC energy markets the OTC credit markets have remained soft in January as customers' await greater clarity on the market structure and regulatory matters currently under discussion.

Overall we remain confident in the growth opportunities available in the global credit market and in our position to best benefit from those opportunities. Jeff will discuss this greater detail in few minutes.

Now let's flip to slide 10 in I'll patch on a few 2008 highlight from our financial perspective.

ICE's consolidated revenues increased by 42% in 2008 over 2007. Over the course of the year, ICE's futures ADV increased 10% for energy and 52% in our agricultural and financial product.

Our OTC business segment delivered 61% growth in revenue, our strong revenue growth and disciplined approach to investment is pending in 2008, helped us generate a record $375 million of operating cash flow an increase of 30% versus 2007.

We ended the year with $287 million in unrestricted cash and short term investments and our leverage remains low.

Last September, we initiated the first share repurchase program in ICE's history. During September, we set $300 million to repurchase 3.2 million shares of our common stock. Our share repurchase program remains in place and we will continue to evaluate the optimal use of our available cash across the numerous opportunities we see.

We have a diverse model with a healthy capital structure and good cash generation, which we believe, enables us to withstand changes in the business cycle and continue to invest to generate growth.

The value of the company ultimately rests in its ability to generate cash and positive returns to its shareholders. This is particularly true in the times of the economic turmoil.

You will see on the right hand side of this chart, two key measures of cash generation, operating cash flow, and adjusted EBITDA. We defined adjusted EBITDA as operating income with depreciation and amortization expenses added back, less capital expenditures, capitalized software and ongoing Russell royalty payment.

The bars on the graph reflect the annual revenue operating cash flows and adjusted EBITDA we have generated. The percentages show a strong and consistent trend of year-over-year growth across each measure and in each year.

On a compound growth basis, each measure has increased more than 70% over the past four years.

ICE has consistently delivered not only strong revenue growth, but importantly strong cash growth. We are confident that the business we have built will sustain our ability to grow revenue and generate solid cash flows, and we will continue to focus on these key measures throughout 2009.

In closing, please refer to this mornings' earnings press release or the appendix at the end of this presentation for updated guidance information. This guidance includes information on charges that we expect to take in the first quarter related to certain headcount reductions.

Given the uncertainty in the global market as I mentioned earlier, we have focused on all areas of spending. We also believe it is prudent to accelerate our efforts to improve the efficiency of our business and realize the synergies related to our recent acquisitions.

These actions will result in to 5% to 7% reduction in our workforce during the first quarter of this year. We expect to take $2 million to $3 million charge in the first quarter and expect annualized savings of $8 million to $10 million starting in the second quarter. Thus we will start the New Year with an even more efficient and integrated business that is well positioned to continue to enable the growth strategies Jeff will discuss.

We expect to file our 10-K this week and I will be happy to address any question during the Q&A session. Jeff, over to you.

Jeff Sprecher

Thank you, Scott, and good morning, everyone. There are number of initiatives underway at ICE. So I want to take a few minutes to describe these to you with an update. First, I would like address the market environment in which ICE operates today. I will also talk about our core over the counter in futures markets, and finally I will discuss our clearing initiatives which include our efforts in the credit default swaps market.

It's clear that the global recession has impact on businesses and markets will continue to occupy headline or much of 2009. Over the past 18 months market participants have been faced with extreme levels of market volatility, reduced access to capital, and a contracting global economy.

Virtually every firm has been impacted in some way which has increased the level of risk conversion and driven the focus on capital preservation.

Amid this financial backdrop however, ICE has continued to execute on our strategic plans which include delivering solutions that can support the recovery of the markets. While the breadth of today's financial turmoil is unprecedented ICE has experienced in addressing a difficult environment.

Following the collapse of Enron we saw significant decline in credit and market liquidity within the broad energy market and as a result extended decline in OTC Energy trading. This came at a time when energy was our only business line.

ICE was able to successfully weather the downturn in energy volumes and we actually created solutions such as OTC clearing that significantly aided recovery not only for our business but for the market as a whole.

In this downturn while we have not seen the same dislocation in our energy markets we are clearly seeing it in other market segments, and are taking the same solutions-oriented approach. By leveraging the assets we have established over the past few years. We are very well positioned to address the today's challenges as you can see from our 2008 performance.

If you turn to slide 11, you will see the mix of our transaction revenues for 2008. As the leader in a global derivatives market place ICE today captures approximately 30% of its revenues from outside the United States.

Throughout 2008, we saw steadily increasing connectivity to the ICE's platform from countries around the globe and we continue to see new users in 2009. This historically high level of participation extends to our market data business where we saw another record quarter of revenues and growing demand for our data.

We view continued demand for ICE data as a positive leading indictor of the high level of interest we have in our markets.

In addition, you can see that the composition of our market participants including commercials, financial institutions and banks and liquidity providers remain consistent over the course of a very volatile year.

Our 2008 statistics for OTC energy markets are inline with prior years and participation was also essentially inline in the fourth quarter as well.

As we have long stated commercial market participants remains a dominant set of customers that we have in our market.

In light of the overall market conditions our fourth quarter OTC business volume held up relatively well. Our average daily commissions declined a modest 4% year-over-year.

In addition, we were up against the strongest comparison that we had experienced to-date in a market that has been largely dislocated by credit challenges.

In terms of monthly performance during the fourth quarter, while October and November were solid months, we saw a substantial decline in activity in December.

Capital markets participants across the board pulled back at year end beyond anything we have experienced in recent years.

While, the holidays typically produced lower volume financial market conditions across OTC energy market participants to take risk off the table in the month of December.

There are signs of stability however, and as Scott noted January showed significant improvement, first our open interest in the over the counter market increased 31% in 2008 from 7.2 million contracts in January of 2008 to 9.4 million contract as of the year-end.

As a result we believe that the lower level of activity at the end of last year reflected a short period of risk aversion rather than participants exiting the market.

In January, as they have each January in our past traders did return to the OTC Energy market and we saw a more normalized level of activity.

In January and in the February our average daily commissions have returned to the $1 million level and are up shortly from December levels in particular.

We now have many opportunities to grow our over the counter markets including our refined oil products as well as our leading OTC gas and power markets. As many of you know, for over a year and half and after we terminated our clearing agreement with LCH ClearNet we were unable to launch any new clear contract.

With the launch of ICE Clear Europe, we will now deliver more than 70 new OTC Energy products by the end of the first quarter with the more to come in the balance of 2009.

Now turning to our Russell's Index futures markets, which are on slide 12, we have included some charts to illustrate the progress for this new contract on ICE.

Our Russell Index futures volume remains healthy and since the late September transition of the contact to ICE, we have consistently maintained an approximate 6% market share relative to the S&P 500 Futures contract.

We see growth potential for the Russell complex and are continuing to transition new and existing market participants to our market. One point we would like to highlight, our prevailing market conditions, these have been somewhat less attractive for trading indices where differentiation is made among investment styles, such as small cap, growth and value, relative to a general market basket.

The chart on this slide demonstrates the lack of distinction among the PE levels between index styles since last September. With the small cap, growth and value and large cap indexes, all converging at roughly a ten times PE, a situation which is unprecedented.

We are talking with our customers about the right time to launch our additional Russell indices, most likely when the markets begin to differentiate again between style indices and the broader market.

In the mean time, we do not see a substitution effect for the Russell by major hedgers in the equity space. We do see opportunities to grow through attracting new customers over 2009 as we expand this product suite.

With regard to ICE's agricultural futures, these products are distinct with respect to the needs and the issues in each market. However, credit dislocation have generally impacted agricultural market participants resulting in less activity, particularly by commercial players.

While we do not know what the year will ultimately shape up to, we are confident in the longer-term growth of the franchise.

Since we acquired the New York Board of Trade in 2007, we have seen an increased average daily commission and profitability.

In addition, we have both, quantitative and anecdotal evidence that the conditions in the Ag markets are improving.

Each of our five agricultural commodity futures and each of their related options contract have had rising open interest in January reversing last year's downward trend. Anecdotally customers have acknowledge that there are signs of improvement though we remain cautious until broader market conditions improve and make credit available to small agro business customers.

In our futures market, of ICE Futures Europe volumes are held up not only in the fourth quarter but have shown strength in the January and February.

In fact, January '09 average daily volume grew 14% despite challenging caparisons. ICE's gas oil set new average daily volume records in January and ICE Brent contract have their second best month in its history.

As you may have seen from headlines in Wall Street Journal and The Financial Times, interest in the Brent Crude contract is growing rapidly due to the increasing importance of Brent as a global benchmark.

Overall, our crude and refined futures market share remains stable at approximately 50%.

If you turn slide 13, we will now move to the topic of clearing where we have a number of initiatives well underway.

In November we launched our European clearing house ICE Clear Europe which we started developing more than two years ago. We gained the support of the industry and successfully transitioned 100% of the open interest.

ICE Clear Europe is now capitalized with roughly $16 billion and is on track to deliver meaningful incremental revenues in 2009 and beyond.

Since its launch we have announced dozens of new products, which are now even more relevant due to the increasing demand for over the counter clearing.

In fact, ICE Clear Europe is now working together with market participant to bring a European clearing solution to the credit derivatives market. So as to operate under the jurisdiction of European regulators. We will bring in more information on our European CDS clearing plans as this latest initiative unfolds.

Staying on the topic of credit default swaps I want to provide a brief update of where we are today.

Last fall, we announced plans to acquire the Clearing Corp. to extend our footprints into the OTC credit markets. Over the last several months we have been working to build the newly established ICE Trust to clear CDS.

Our progress has been tremendous. While we set out with the intention of forming a new clearing house we have extended our plan into working with the industry and with regulators to establish not just a clearing house but a new sound market structure for the operation of the global CDS market.

While ICE Trust is operationally ready and testing with major dealers has been completed. We are now involved in a broader CDS market restructuring discussions.

One of the interesting things that we are working on now is modifying the structure of the contract and of the market themselves, so that they become standardized and more tradable. This should facilitate greater liquidity and improve risk management and it's just one of the steps we are taking to solve the complexities in this nearly $30 trillion market.

So while the clearing house is ready to go it's only as good as the products, the data, the mark-to-market there is a full settlement procedures and the risk management tools that we are surrounded with.

As we continue to make progress in settling these varied issues we are confident that we will gain regulatory approval for ICE Trust in the very near term. The timeline is predicated on our work to solve the range of structural issues that once resolved will create a new risk management framework enabling the credit industry to grow.

This has required a significant amount of discussions with regulators, banks and funds. Our bank application was approved by the New York State Banking Department in December and when we do finalize our plan and gain necessary and final regulatory approval we will certainly announce a launch date and initial financial impact to the extent possible.

And now I would like to update you on the broader CDS market. It's ICE's view that the credit default swap market is a vital operating part of the credit markets today and it brings substantial economic value to market participants similar to traded instruments in other asset classes.

In case of CDS, debt is increasingly price off credit spread relative to the traditional practice of looking to LIBOR or credit rating agencies. Credit default swaps are highly relied upon by global market participants and represent another important tool for managing risks.

Importantly CDS instruments have worked or did advertise. Our credit subsidiary together with markets have completed more than two dozen options of defaulted debts over the last few quarters. Each option has facilitated the orderly pricing and liquidation of instruments, we believe that CDS protection is and will remain a valuable tool as both the private and public sector work to encourage more lending and the extension of credit.

As Scott, noted the Creditex integration is on track, we have integrated our technology groups and are working on establishing synergies with our marketing finance and professional services teams.

Our common culture growth innovation and customer service has facilitated many intangible synergies. We will continue to leverage our respective platforms to gain further cross organizational benefits.

Operationally Creditex continues to expand its training platform capabilities and liquidity and today more than a third of its transactions are conducted fully electronically.

In addition to our leading electronic CDS platform innovative products like T-Zero, Compression and Credit Event Auctions have positioned us to benefit. Assuming CDS trading levels reaccelerate with the addition of clearing.

We are also fortunate they have Creditex's talented brokerage team, with deep product knowledge and strong customer relationships.

I mentioned previously that there are structural issues in the CDS space. One important key to well functioning market is the effective and reliable back-office processes and tools.

Historically, these have been virtually manual functions in the CDS market. However today, our T-Zero interface is one of the few available that allows firms to meet new requirements of fully electronic back-offices.

During 2008, there was a substantial increase in the connectivity to T-Zero, by both buy-side and sell-side market participants.

During the fourth quarter alone, we connected over 100 new buy-side firms to T-Zero. And for the full year, T-Zero nearly doubled it's connections.

Today, all of the major dealers, banks and over 350 buy-side firms are now connected globally. These firms are connecting to manage their current bilateral positions as well as to prepare for their clearing through ICE Trust. So I would like to leave with a key consideration on the topic of CDS.

I would like to encourage you to consider the totality of the credit derivatives market structure that ICE has created. Not just one facet, such as clearing, regulation or technology.

It's really about repackaging the risk and making needed changes in the product itself to support the growth and the health of a very important market. And we are involved in each of these aspects with the credit derivatives industry.

So to conclude on slide 14, I would like to share our outlook on our operating environment. Lately the word headwind has been used with respect to growth in our sector. However, as we have in the past, ICE used many of these so called, headwinds, as opportunities. We plan to see change in dislocations as opportunities to expand and serve unmet needs.

We continue to believe that growth avenues in the intermediate term do exist and that our longer-term opportunities are numerous, and they extend far beyond market share gains in the innovation and in the new markets.

Just as we have put initiatives in place well before the most recent cyclical downturn. Today we are advancing initiatives that will take us into 2010 and 2011.

Our approach has been highly evolutionary and opportunistic, and we will continue to innovate and execute to insure that we remain a growth leader in our sector.

So I would like to thank you all for joining us on the call this morning. And with that I will now turn it back to the operator to moderate a question-and-answer session.

Question-and-Answer-Session

Operator

Thank you. (Operator Instruction) We will go Rich Repetto of Sandler O'Neill.

Richard Repetto - Sandler O'Neill & Partners

Good morning, Jeff and Scott.

Jeff Sprecher

Good morning, Rich.

Scott Hill

Good morning, Rich.

Richard Repetto - Sandler O'Neill & Partners

I guess first thanks for the transparency on the OTC commissions. I guess my first question would be just to clarify there was this articles about how Brent market share in the OTC business had clear port which is growing very well. Is the Brent business that they are doing is that just on new business taken from banks this was not out there before in the OTC in the Exchange OTC market?

Jeff Sprecher

Thanks for the question, Rich. First of all, I think you are aware that we are the home for the Brent crude oil futures market and in fact there is the cash settled market that settles on the index that our colleagues here at ICE provide. Just to put in context, yesterday we traded electronically 323,000 Brent futures contracts.

Our competitor traded 158 contracts. In other words we have far more than 99% market share of traded Brent futures. We do not consider market share to be something called open interest that's an inventory number and the amount of open interest that is being referred to we traded in one day yesterday. So, we do not get paid for warehousing positions in a clearing house, we get paid on our revenue model which is a per transaction fee and is highly sensitive to the velocity of trading.

So, we have focused our OTC clearing work on trying to roll out first new products that we think will have velocity and will create an annuity. So that when you look at our cleared volumes and think about forward looking view of the company that you can see revenue and earnings growth.

With respect to the open interest that you are referring to market share I think is an unfair comparison we do not have many of those products available for clearing. And in fact as I am alluding to they are not our highest priorities in terms of rolling out new products.

Warehousing low velocity long dated derivates on behalf of the industry is a very important thing but in terms of prioritizing on ICE it's not where we believe that we will able to grow revenues.

Richard Repetto - Sandler O'Neill & Partners

That's very helpful. And my one follow-up would be just more on Creditex, all the feedback is that the market is like you said in front of the regulatory and anticipated changes has slowed and I was just trying to see of the headcount, where does the run rate maybe the EBITDA margin of Creditex I know it was 25% initially and on the headcount reductions, a bunch targeted at Creditex or not?

Scott Hill

Yeah, with regards to the headcount reductions, you may recall that when we announced the Creditex transaction. We anticipated synergies in the range of $9 million to $14 million half of which we though it would come from expense. So if you look 80% to 90% of the headcount reductions we will take in the first quarter relate to Creditex and we will actually deliver somewhere between $7 million and $10 million of expense synergies at Creditex on an annualized basis.

So as opposed to the original guidance the $5 million to $7 million will be closer to $7 million to $10 million for that business. It's worth noting that in the fourth quarter on a cash basis the Creditex business is actually neutral to us and we still think in the back half of '09, we could get to cash accretion and as we look to our previous guidance overall GAAP accretion was within 18 months.

Richard Repetto - Sandler O'Neill & Partners

Okay. Congrats on the solid quarter guys.

Jeff Sprecher

Thank you.

Operator

We are going to Alex Kramm of Barclays Capital.

Alex Kramm - Barclays Capital

Good morning, just want to comeback to the OTC business and digging a little deeper, you obviously gave a little bit of color here of January and February. But can you maybe slice us down a little bit I mean when talking to some of the market participants in particular the commercial participants sounds like people are not really that willing to hedge these days given where natural gas prices are but obviously there a lot of other things going on, you have benefited from the internalization of clearing, you have exclusivity of some of the newer product and new products that you are introducing. So, is this, is the base business growing as well versus all new additional thing that are growing this January February volumes?

Jeff Sprecher

That’s a good question, I think you actually have a very good perspective on what’s going on. And it’s very, very hard for us to thread the needle as to specifically what trend is driving growth. But it is fair to say that many of the prices of the energy commodities that we trade in the OTC space are at very, very low prices. And often times people have the view that they are going to remain low, it causes people to back away from hedging. And there have been a number of stories written recently for example that some of the airlines that were very, very hedged on jet fuel going into 2008, today are almost unhedged.

So we have actually been quiet pleased with the results of OTC Energy trading beginning in January and February, because it has dramatically increased from December and it does seem to reflect underneath that the idea that people have started the New Year with the fresh view and are starting to put positions on and take a view about the longer-term trends in energy.

I think by the way we see a similar trend in agriculture as well with people going unhedged. And our sense is that that is not sustainable. The good news there is that we do not believe customers have left our markets, we believe they are still in our markets, we believe they just backed away their hedging particularly in the fourth quarter of last year and are starting to take a fresh view.

I mentioned in our prepared remarks, we have some anecdotal evidence that people are feeling better about the credit worthiness that they need in order to finance hedge positions and that we are starting to see early signs of that activity.

We certainly are not hearing anecdotally from our customers the sense of gloom and doom like we were in the fourth quarter, particularly in December where it almost seems like traders threw up their hands and just said I'm tired of the year and I'm going to go home.

Alex Kramm - Barclays Capital

Alright, I got it. And then let me just shift to the CDS platform here. Now, do you think you are going to have this running very soon in the first quarter perhaps, now are you able to share any sort of pricing methodologies with us at this point, I mean you have a competitor out there that has a platform running. They actually gave their pricing although there is not really any volume there yet. And when talking to some industry participants its sounds like you communicated something in I want to say 0.05 basis points a notional value preside. So can you comment on these levels and how are you thinking about pricing in general?

Scott Hill

Alex, this is Scott. I just said in the prepared remark we have not announced any specifics with regards to pricing, when we do close the deal and open the Clearing House we will provide additional guidance and update. So there is not really any comments we can provide at this time.

Alex Kramm - Barclays Capital

Okay, I guess I have to try. Thank you.

Operator

We will go to Ken Worthington of JPMorgan.

Kenneth Worthington - JPMorgan

Hi. Good morning. First there is a direct consortium bid to acquire LCH ClearNet. What do you think the impact is on your ability to offer clearing services for new OTC products if this acquisitions goes through, I guess, does it have an impact on your outlook for those growth opportunities?

Jeff Sprecher

That’s a good question. I think you particularly are well versed in this area and are probably aware that there has been a working group related to capital markets that has been responding particularly to demands by the New York fed on how to improve transparency and counter party credit in the broad derivatives space. And that in writing a large group of market participants had indicated sometime back that the view was that interest rate swaps would be cleared through LCH ClearNet expanding on the current swaps clear offering that is there.

And I think what you are seeing in terms of the pension that's going on around the ownership of LCH ClearNet is getting prepared to meet the commitment that group of industry participants made. And I said precisely recently that right now LCH ClearNet is owned by group of banks and the DTCC which has made an offer is owned by group of banks and this new consortium is a group of bank.

So, it's largely the same market participants, but what's going on is trying to get the right syndication of market participants and right of boarding governance structure and forward looking view of how to roll out that platform.

So, anyway with respect to the ICE, we are very, very interested in acquiring the clearing corporation. I will tell you that the reason it has not happened yet is we are only interested in acquiring the clearing corporation. If it has a license to be able to clear CDS trade, so it's closing is tied to our plan of regulatory approval.

But the reason we like to own it is the platforms that are in there have really been designed for derivatives clearing and the workflow processes that exist around are very much tied to the way the industry right now is settling a broad range of derivatives.

So, we do view our footprint as an opportunity to expand. I think we benefit from the fact that there is lot of uncertainty right now about the exactly how LCH is going to be owned and that may play out for sometime and thereby creating opportunities.

Kenneth Worthington - JPMorgan

All right. Thank you, and follow up ICE Clear Europe, I know there is a lot of moving parts can you tell us how much it contributed or even approximately how much it contributed to fourth quarter results?

Jeff Sprecher

The only thing I can do point back to our rate per contract which is as you saw as we added the clearing revenue in, it went steadily up from October to November and then closed the year at 142 in December and then 154 in January on a rolling three months basis that's the best indication I can give you of the impact that clearing is having because we are not going to break the execution in the clearing out separately.

Kenneth Worthington - JPMorgan

Okay, I think there was one part, I want to get the rest. Thank you.

Jeff Sprecher

Thank you.

Operator

We’ll go next to Howard Chen of Credit Suisse.

Howard Chen - Credit Suisse

Good morning everyone.

Jeff Sprecher

Good morning.

Howard Chen - Credit Suisse

Thanks for the color at this morning. Aside from the headcount reductions, Scott can you discuss what type of variable expense leverage you have particularly with respect to the Creditex franchise, how many of those broker contracts are locked in versus variable vis-à-vis activity levels as we go through and uncertain '09?

Scott Hill

Yes, Howard for competitive reasons I really would not want to go into the specifics of our broker contract. What I would tell you is that embedded in the headcount reductions we announced this morning, included in that is about 20% broker reduction. We have got a terrific leadership team that's running the broker desk, at Creditex and that team has done a very good job at looking at the key performers and keeping those key performers in and those who were not delivering the levels of performance sharing those resources.

So, the broker performance generally as you know is not particularly variable there are guarantees and some of the contacts but I think we are taking actions with the resource reduction to address the lower performing brokers.

In terms of general efficiencies, broader part, Jeff mentioned in his remarks of what we are doing at combining our technology teams, combining our finance and accounting staff, our legal staff, looking for synergies that are really across the organization. And frankly we are doing that across our businesses.

As we look at ways to become more efficient in our staff functions that supports the business. And then frankly, as I mentioned in my remarks we still are investing in growth. We have got a number of projects, some we have discussed externally, some that we have not, that we continue to invest in. And shipping get worst in the market, we have the ability to delay or suspend some of those projects.

But as we sit here today, as Jeff mentioned, we see numerous growth opportunities and we think now is the good time to invest and seize those opportunities.

Howard Chen - Credit Suisse

Okay. Thanks, Scott, and then as my follow-up Jeff, historically ICE has grown, both organically and through acquisitions. What does the M&A environment look like now, what are build versus buy capabilities and how do you view that vis-à-vis where your own stock is right now? Thanks.

Jeff Sprecher

Yeah. It's interesting market that we are in right now for a while lot of private companies that could have been acquired had not reset their expectations of their own value and with the unfortunate prolonged downturn that we have had, people are getting realistic in the private markets about valuations and looking at a relative public companies for the first time.

So I think the private market is actually improving the public market obviously has broadly hurt the financial services industry, and as I pointed out and you can see on the slide that we have related to just the Russell indices, notwithstanding that for example that ICE last year had a 42% rise in revenue and a 28% rise in adjusted EPS, probably some of the best performance of any financial services company in the United States, the PEs of all companies have collapse, so it makes using stock as a acquisition currency complicated, not impossible but complicated.

The good news that we have seen lately and I am talking about maybe the last three or four weeks is that one of our competitors recently did a refinancing of their debt and in connection with that, many of the banks and Mark participants in that offering have been through here and talking to us about our borrowing capacities, our current debt and credit lines what have you, and we really do see a improvement in the debt markets right now to the extent that one would want to have them.

We feel much more comfortable about our balance sheet now than we have over the last year. And I do think there are, all that taken together, may create some opportunities for doing deals going forward.

You pointed out correctly that we have a buy versus build mentality here, and we do have some ideas as Scott pointed for growth that we are investing in internally. And to the extent that other external parts would accelerate us at the right price, we will certainly take a look at those.

Operator

We'll go next to Mike Carrier of UBS.

Mike Carrier - UBS

Thanks, guys. Just one question on all the product launches, you guys and a lot of other competitors have been recently launching a lot of products on the OTC side. I just wondering, one, is there that much customer demand, or is it just more innovation on your side?

And then just given the pickup in the commissions January, February, is there any related to any of these new products hard to gage, since we can't deal the yearly basis in terms of commission or volumes and new products addition, trying to get a sense of any of them already taken hold?

Jeff Sprecher

This is Jeff. I will take the first half of your question and ask Scott to take the second half. In terms of the new product launches, because we were unable for of two year to launch new products, we developed a very expensive backlog that came from talking a customers over very long period of time, and we put priorities into those and our priorities have been to find products that play to our strength with largely are product whether can be electronic trading and can be repeat business as oppose to an important service, but not one that is as high value for our shareholders and that would be just taking longer data swap position and parking them in clearing.

Unfortunately the revenue model that exist in this industry is that you get paid one time when a position comes into a clearing house and you can tie up a lot of risk and balance sheet by parking positions that don't move, and you receive very low revenues.

So we have announced a broad range of products, they actually are rolling out overtime, we have to give a lot of forward announcement so that people can get ready with their systems and risk modeling, but those are starting to come out now, so I would tell you that generally the performance that we have seen in our OTC market is largely related to the historically existing products suite, and we will just now start to see some contribution from new products.

Scott Hill

Yes, Mike and just kind of round that out, I mean we do track the activity we have on our contract. We don't tend to talk about the volumes of any single new contracts, because volumes aren't necessarily indicative of revenue level that you get. I would tell you in January for example, we had contract that did over 11,000 units and didn't deliver a lot of incremental revenue, but generally they are additive.

The other thing I would tell you that's more difficult to measure as a lot of time these products fill out the portfolio, the traders want to trade. And so to the extent we add these products, they maybe more inclined to trade existing product, and we are not really able to measure that clearly.

So we do track it. I would tell you it's not a meaningful revenue amount as we sit here today, but as we launch more of these products, I do believe it will contribute directly and will contribute to the trading of other existing products.

Jeff Sprecher

Let me make one last case, is that we have been able to around the edges want some interesting futures contracts, and where we really think, we can get volume, we tend to try to put them in that venue.

And so our emissions' contracts are doing really well, and our new coal contracts that we were able to launch or doing very, very well. So they don't get a lot of attention, specifically from the marketplace. But they are very, very important products to us that are growing.

Mike Carrier - UBS

Okay. That’s helpful, and then just had a follow-up. On the Creditex side, or the CDS side, you indicated sort of what the OTC on the energy side the commissions were, in January, I guess any color, on the credit side.

And then just on Creditex, just given that it's a different model, I guess going forward, if we continue to see some pressure, just on the reduction in volumes for the industry, I guess, is there a way that we should be thinking of just the compensation line going forward, which is different versus how we use of think about it, is there any color there?

Jeff Sprecher

So again, I will take the editorial part of your question, and let Scott gave you the numbers. The cover on CDS, I think the reason that I spent a fair amount of time in our prepared remarks talking about CDS is that, I wanted to set the tone with you for sort of the flavor of how we are thinking about the CDS markets.

And that is that it is not to us just about moving OTC bilateral positions into a clearing house. And increasingly now, the whole industry has come to the same realization, and that is that we really need to restructure the design of the product and make it, so that it is more clearer ball, if you will, so that it can be netted and so that it can be more standardized.

We need to standardize some of the actual default procedures that are in this space to further improve it based on anecdotal evidence that came around some of the two dozen or so default that happened, particularly in the fourth quarter, so the work that's going on right now around the clearing house, and the clearing house has served us sort of a forum and a venue for these kind of discussions with the industry and with the regulators are about that restructuring.

So it's that that I think ultimately is the value proposition that we have built and invested in. It's about having clearing, it's about having electronic execution capability, it's about having voice capability, it's about having straight through processing and post-trade capability. All of those were being simultaneously worked on by us to position ourselves for what we think is going to be a very different market going forward.

And I will just add to that that I think there was a false perception in the market that somehow we at ICE, created some kind of application and turned it into regulators and we are sitting here waiting for regulators to approve this. That is not the case.

What has happened is there has been an interactive dialogue going on around the restructuring of the CDS industry and how some of these pieces can come together and it's that ongoing dialogue that involves many, many regulatory agencies, many, many market participants and are clearing and post-trade infrastructure that's trying to get put into place, so that that can all be solved at the moment in time that this launches. And I think we are at tail end of that. A lot of decisions have been made, particularly in the month of January that I think will lead to a much enhanced market structure.

Scott Hill

And in terms of business efficiency, opportunities with Creditex, I think they come in a number of flavors. There obviously are efficiencies from the staff integration that we talked about. There are efficiencies and possibility improvement like continuing to keep the top performing brokers on the team and those underperforming, letting them go.

There is also a continued shift to a number of the innovative electronic offerings that Jeff discussed in his remarks, whether it's compression runs, Delta-Neutral Auction, credit default auctions, all of those carry substantially higher incremental margins on each dollar revenue, which obviously help the overall operating margins.

So, I think there are a number of ways that business will continue to become more efficient as I mentioned, I believe, in earlier answer, we remain confident that despite the revenue declines, we can still achieve our overall target of GAAP accretions within 18 months, and actually assuming some modest pickup in the back half of the year, we believe we could get cash accretion in the second half.

Mike Carrier - UBS

Okay. Thanks, guys.

Operator

We will go next to Niamh Alexander of KBW.

Niamh Alexander – KBW

Hi, good morning. Can I just switch over to the regulatory side of things for a bit, we were expecting quite a lot of headlines, but I read through and Mr. [Kent] responses to some of the politicians questions, but I guess it looked like he was kind of ready to go back and revisit the whole speculative position limits and speculative limits in the commodity's shredding area. I'd like your views on that.

And the other area would be just CFTC-SEC merger, what are the risks if any do you see to ICE from that situation?

Jeff Sprecher

Sure. Thanks, Niamh. First of all, we obviously are aware of those responses as well and a couple of points that you may not be aware of. First of all, as result of now a number of years of working, both with the CFTC and with Congress, ICE has instituted the reporting, large trade reporting, increased reporting to the CFTC and position limits and accountability standards across our major products.

So the kind of things that I think are being visited there are really in my read, intended to take the kind of work that ICE has done and make sure that anyone else coming into this market that would be in a similar position, would be obligated to do this kinds of things.

I have said before as we were going through this, and I am sure you recall, that we don't have any one large customer, we have a very diverse customer base that tend to hold smaller position. And so some of the launches that are being discussed as to how accountability limits and position limits maybe set, whether they are done by exchanges, or by Congress, or by working groups, or by the CFTC itself. That's more of a detail as oppose to any kind of headline risk that we see.

I think it is fair for Congress to continue to look at this issue. We were heightened and you may have also seen that GAO came out with a report recently that that indicated that they did not see sign that speculators themselves were driving prices. Our own studies did not suggest that speculators were in themselves driving prices so.

I think, moving on to the second part of your question with respect to the CFTC-SEC merger, we think there is going to be broader financial reform obviously, and we see various committees and congress and various senators and congressmen staking our position that as opposed to actually expecting those bills or those actions to be passed tend to indicate throughout that these are people that want to be a part of the overall discussion in debate and they are putting there areas of concern forward, so that they can be dealt with by a broader congressional action.

So I would not get to concerned about any one headline, any one bill, any one comment by regulator and what have you, and think of this as being in the context of what's going to rollout in a broader regulatory.

Reform that we are very, very well positioned for and assets just to see you that part of our move into the credits defaults for our business and into the derivatives business in general has been to make the assumption that there will be more regulation, more transparency, more standardization. Those are all facts that play to our positioning, and we are literally amazed while we were thinking about these two years ago, the need for clearing and need for infrastructure or more derivatives trading and transparency, that is coming so quickly on the heels of the kinds of investments that we made.

Niamh Alexander – KBW

Okay. That’s helpful, Jeff, thank you very much. And then just a follow-up, if go back to the credit derivatives that you just alluded to, I think you have been really helpful here giving us the color on the discussions of the standardization, and I guess that kind of lends itself too, what is changing with respect to the dealer's position, or what can you do to encourage maybe more electronic trading of these credit derivatives, products, maybe the index, as a specially events, if they are far more standardized, should we think about maybe a structure similar to the clearing, or there is share like economics, how should we think about them?

Jeff Sprecher

Sure. I think first of all, it's interesting that particularly in the last 30 days or so, I really feel like there is a broad recognition on the market that the current product is broken. There are people right now that are making a lot of money trading credit default swaps, but it's largely because of forced liquidations by people in the market and very wide spreads and difficult counterparty relationships.

And so while people are making money right now, there is a general sense that that is not sustainable. That is a process of people going out of business and leaving the market, and so what we have seen is a movement, particularly around our clearing infrastructure to not only standardize the contract, but figure out a new way that we can create price transparency to mark position to the market.

And as you may know what trades right now and what you can see on various real-time tapes is a five-year typically a five-year CDS product. And there is price transparency in that liquid part of the market. What exists in the backlog on everybody's books is something other than a five-year product.

It is a product that it's off the run that has the case, and for which there is no price transparency and a lot of issues on how to mark those positions to market, and so the debate that has been going on is very similar to what we see in a broader idea of creating a bad bank for derivatives in the CDO space and that is we can move these positions into a clearing house and the intent of ICE Trust is the move that legacy positioned very quickly into the clearing house, but how do you mark them to market?

And the answer is increasingly moving towards creating some kind of end of day auction process that would create transparency in real time trading of that, and that's where we are part of the debate, that's why this clearing house has have not yet been approved. We are working out the details of that with the industry.

We are fortunate that Creditex is the industry's choice of platform where default auctions and price transparency takes place, and so we are very, very well-positioned. I think as these products becomes standardizes, as there is more electronic price transparency given discovery of prices that we will be able benefit.

Scott Hill

And one thing I would add to that it's just in relative positioning to the extent that the standardization does move things more electronic, we have a very well established electronic trading platform at Creditex.

36% of the business done in 2008 was done electronically. Well over 70% of the business in the U.K. was done electronically, so to the extent it does move more electronically we are well-positioned to that, to the extent some of it's stays in the voice, broker market as I mentioned earlier. We still have a very talented broker team of Creditex that's positioned to handle the business that way.

Niamh Alexander – KBW

Okay. Thank you very much for taking my questions.

Scott Hill

Sure.

Operator

We will next to Dan Fannon of Jefferies & Company.

Dan Fannon - Jefferies & Company

Thanks. Most of my questions have been answered, but just wanted get maybe if you could little bit of color on the differentiation maybe amongst your customer base within the OTC segment you gave some comments around some of the commercial users, but could you talk about how you kind of the banks liquidity providers started to act here thus far 2009 as well?

Jeff Sprecher

We only had a month in 2009, but what I can tell you as we looked at 2008 and this is true of the fourth quarter and year, our customer mix is pretty stable. And on the chart, we showed in the presentation 2007 and 2008, I tell you if you look back to 2005, 2006 you would see basically the same thing.

We consistently had a 45% to 50% mix of commercial user, that's still the case. We consistently had the bank to the 22% to 25% and the liquidity providers around 30%, so we have been very stable with our overall customer base, I think one of the reasons as Jeff alluded to there is no single customer that tend to dominate, so is has been a mix and we continue to see demand.

You can see it in our data revenue, which were up again in the quarter. You can see it in the number of login IDs that we look at each month, so there remains a great demand for the product we trade in our OTC market in a very consistent, very stable mix of customer participant.

Dan Fannon - Jefferies & Company

Okay. Thank you.

Operator

Jonathan Casteleyn, Wachovia Securities.

Jonathan Casteleyn – Wachovia Securities

Thanks. I will try to be quick here. Jeff, I know you articulated the broad strategy in positioning for the business, but just wondering what you think is the best opportunity for '09 either existing product line or new opportunity?

Jeff Sprecher

So that's tough one. Thanks Jonathan. If you really look at our performance last year in 2008, I am very proud of what the business has been able to do, but it's really backend the new initiatives that we are talking about are backend loaded.

We just closed on credit actions in the last half of the year. We just launched our clearing house in November in Europe. We just transition Russell to the company in September. So, a lot of the things in my prepared remarks were speaking to were the fact that we are starting this year with an interesting new arsenal.

My job as CEO is to be looking at 2010, 2011 and so I am actually quite excited about some of the other things that we have not announced yet, I think continue to position us well. And so that is not to say that 2009 is not going to be very interesting because of those three products.

We pointed out the fact that Russell is really spiral indices and right now the market is not differentiating but again that's not sustainable in my view and eventually people are going to gain pay for growth and differentiate value. And there will then be hedging and trading activity we believe around Russell indices that will accelerate. We obviously believe that there is going to be more OTC product that are coming in the clearing houses and we obviously believe that the credit markets are fundamental and are going to restructure become regulated standardized and more transparent. So, which one of those happens in which quarter and which one contributes the most, I do not know but totality of all of those is so interesting I think relative to some of our competitors and I am very proud of what my team here has been able to put together in the way we position those for growth.

Jonathan Casteleyn – Wachovia Securities

Okay, thanks, I appreciate that. Just quickly I do not want to pass forwards, but Scott, did you say the are you saying the average for January and February in OTC are at back to million per day or they over a million per day want to make sure clarity on what you said there?

Scott Hill

I am not really sure, we were specific but they have been over $1 million.

Jonathan Casteleyn – Wachovia Securities

Got it, okay. Thank you.

Operator

We’ll go next to Mike Vinciquerra of BMO Capital Markets.

Michael Vinciquerra - BMO Capital Markets

Thanks, Jeff, just one clarification on your comments regarding the standardization the CDS market, it sounds to me like you guys are on very close conversations with the regulators and almost sounds the standard that you set in those conversations may become the default for the industry. I'm just curious if there are other parties, other competitors I guess involved in these conversations that are trying to help set the standards, or if you guys will essentially become the standard in another markets will have to go buy whatever you guys develop with the dealers and the regulator.

Jeff Sprecher

Sure. I think it's fair to say that is, which really sets broadly the standards on behalf of the industry, and it's the form where historically things are adopted and where agreements, the ultimate settlement and what have you, in the agreements are manifest.

That process is going on as well. It's just that in order for us to launch the clearing house, we have to have the issues resolved from the first day. We can not necessarily wait for ease what is the process to play out so what we have been doing with the regulators and with the broad group of market participants are solving for these problems, putting them in our rules and risk models and then if the industry adopts what we have done, nothing will change at our clearing house.

It is to somehow modify that process then we will go back and change to comfort with the broad industry group. But it is part of our application and it is part of our thinking with the banks that have initially joined us and now with the new bank that has joined Barclays that we are going to take their existing positions immediately and backload them into the clearing house. So that means from the first day of operation, we have to have transparency and price discovery into the legacy positions, and these are you read everyday in the newspaper that there are real column in price discovery of the liquid derivates.

So, I would say to you that it's unique and the Creditex is the venue that is has selected for price discovery has long been established we have agreements with markets to stay effect with 2005 on how we go about doing price discovery. And so revisiting of that is going on with the regulators.

Our clearing house will only be as good the marks that we put in and the day the minute we put marks into that clearing house is going to be pays and collapse between various market participants and cash is going to move based on those marks and people are going to have to take P&L charges based on those marks.

And so it's very, very important for the industry and to the regulators that from the very beginning we get that right.

Michael Vinciquerra - BMO Capital Markets

So is it true then if you get SEC approval you can start trading these products. You do not have to wait for it is their tax rate confirmed the standards that you have set?

Jeff Sprecher

At least we have group of market participants that have agreed to use our platform and are in the process and agreeing to use those marks. So I believe that it's such a large amount of open interest that will move quickly in that is that it's very, very likely that our marks and our standards will be adopted broadly. But I do not want to prejudge what others may bring to the process, that is a long standing process of multiple voices and compromise and that will continue to operate through its own course.

Michael Vinciquerra - BMO Capital Markets

Very good. Thank you.

Operator

We will go next to Patrick O'Shaughnessy of Raymond James.

Patrick O'Shaughnessy - Raymond James

Hi, good morning.

Jeff Sprecher

Good morning.

Patrick O'Shaughnessy - Raymond James

The quick question I had was going back to the Russell contract. I kind of understand the premise that, you have stated about 5% market share to S&P 500 e-mini for the last several months. But kind of if you look back little bit further it was turning around 10% market share, I think when the contract was previously held to see group. So my question would be what can you guys do to kind of get the trading volumes back up the levels where they have historically been or to get that market share back up to levels where it's historically been?

Jeff Sprecher

I think the short answer is that is nothing because lot of that is volume that we are not interested in. A lot of that is Delta is volume that existed on an up quite trading for and we are not prepared to launch these things open. Secondly, it was volume that was, there were many, many people that had to deal that they paid $50 a day for all they can trade and we are not willing to put in these highly differentiated price structures of various people with that really do not provide any revenue to the company. We do not mange ICE for volume growth, we mange ICE for revenue growth.

And as long as there is deep liquidity in a market place we are happy to have a smaller volume at higher revenue where the prices that our customers pay are transparent and fair. So that we do not get some kind of quivering of prices and sense inside our customer bases somehow some people are advantaged and others are disadvantaged. And that's main reason that we on the first day that we moved that contract over we did not bring that customer base along.

Patrick O'Shaughnessy - Raymond James

All right. It makes sense. Thanks a lot.

Operator

We go to Patrick Pinschmidt of Morgan Stanley.

Patrick Pinschmidt - Morgan Stanley

Hey, good morning guys.

Jeff Sprecher

Good morning.

Patrick Pinschmidt - Morgan Stanley

A quick modeling question in terms of the targeted broker headcount reduction within Creditex, I mean is it fair to anticipate some sort of revenue slippage there, or do you is the plan to kind of migrate these broker books to electronic platforms therefore keep the revenue?

Scott Hill

We, I mean as we look at the broker reductions as I said this was lets go state 15 or 20 brokers out, it was a very thoughtful analysis on which brokers are producing and which are not. And that's reflective of the package as Jeff alluded to earlier, we don’t manage for revenue, we mange for profit, so we wanted to keep the efficient brokers on board and we have done that we have got a very talented remaining team, those were less efficient go away.

Which is a long winded way of saying, I do not expect that the reduction in the brokerage business in and out itself, will result in particularly negative impact to revenue. The revenue issue we are dealing with right now is frankly a soft market, just waiting to see what happens in the clearing and the regulatory front. And when that comes back with the broker team we have got and electronic platform we offer, I think we will not only benefit from the clearing initiative we are working on. But also from the more traditional execution business that Creditex brings to us.

Patrick Pinschmidt - Morgan Stanley

Okay. Great, thanks.

Operator

At this time I will turn the conference back to management for any additional remarks.

Scott Hill

Well, again thank you all for joining us. And we look forward to talking to you again next quarter.

Operator

That concludes today's conference. Thank you for your participation.

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