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IntercontinentalExchange, Inc. (NYSE:ICE)

Q4 FY07 Earnings Call

January 31, 2008, 08:30 AM ET

Executives

Kelly Loeffler - VP, IR and Corporate Communications

Scott A. Hill - CFO

Charles A. Vice - COO

Jeffrey C. Sprecher - Chairman of the Board, CEO

Analysts

Daniel Harris - Goldman Sachs

Howard Chen - Credit Suisse

Richard Repetto - Sandler O'Neill

Ken Worthington - J.P. Morgan

Jonathan Casteleyn - Wachovia

Chris Allen - Banc Of America Securities

Niamh Alexander - Keefe Bruyette & Woods

Rob Rutschow - Deutsche Bank

Edward Ditmire - Fox-Pitt Kelton

Mark Lane - William Blair

Operator

Good day everyone and welcome to the IntercontinentalExchange fourth quarter 2007 earnings conference call. Today's call is being recorded. At this time, I'd like to turn the conference over to Kelly Loeffler. Please go ahead.

Kelly Loeffler - Vice President, Investor Relations and Corporate Communications

Good morning. To obtain a copy of the company's fourth-quarter earnings release and presentation, please visit the investor and media section of our website, ice.com. These items will be archived and available for replay. Please be aware that our comments may contain certain forward-looking statements. These statements represent our current judgment and are subject to various risks, assumptions, and uncertainties as outlined in our filings with the SEC. Actual results may differ materially from those that are expressed or implied in any forward-looking statements.

With us on the call today are Jeff Sprecher, Chairman and CEO, Scott Hill, Chief Financial Officer, and Chuck Vice, Chief Operating Officer. Scott will begin with a review of ICE's financial performance, Chuck will provide an update on clearing and technology and Jeff will conclude with a brief overview of our growth initiatives. At the end of our prepared remarks, we'll take your questions. The call will be followed up with a Q&A and I'd now like to turn the call over to Scott.

Scott A. Hill - Chief Financial Officer

Thank you Kelly and thanks to everyone for joining us today. I'll begin by highlighting ICE's key financial and operating metrics for the fourth quarter and then I'll hand it over to Chuck and Jeff to discuss a few of our key initiatives for 2008.

Let's start on slide 4 with an overview of ICE's fourth quarter 2007 results. We delivered another solid performance in the fourth quarter including record consolidated revenues of $159 million, up 67% year-over-year. Our operating income increased 50% to $97 million during the quarter. Our operating margin was 61%. Net income for the quarter was $65 million, an increase of 32% and earnings per diluted share were $0.90.

I'd like to take a moment here to talk about a significant element of our 4Q results. ICE's culture is performance based and our compensation programs reflect this vital attribute. We closed out a great year, one in which we significantly grew revenues, profit, cash, and shareholder value on a strong note in the fourth quarter. Accordingly, we exceeded certain performance measures, which resulted in higher cash bonuses, investing levels, and performance based equity grants across our employee population.

Our 4Q results also reflect $4.1 million or roughly $0.04 per share of incremental non-cash compensation expense which reflects an accelerated method of expense recognition rather than an even straight-line approach that more closely track the actual vesting of those awards for employee. I'll be happy to provide further comments on this during Q&A.

Next on slide 5, I will provide some details about our fourth quarter consolidated revenues. Transaction revenues comprise our three regulated futures exchanges and our global OTC segment. Transaction revenues in the fourth quarter totaled $133 million, up 60% year-to-year. These revenues accounted for 83% of our consolidated revenues in the quarter. Consolidated market data revenue increased a 142% to $23 million and accounted for 15% of consolidated revenue. Each of these segments grew as the demand for access to commodity markets increased and as the number of customers in each rose steadily. We are particularly pleased with our market data revenues, which reflect a modification to our fee structure for view only screen and continued strong interest and demand for data in the markets we serve.

Turning to slide 6. Fourth quarter consolidated operating expenses were $63 million, up a 102% over last year's fourth quarter. As with prior quarters this year, the largest driver of the increase was the addition of expenses for ICE Futures U.S. to our consolidated results. At the end of 2007, the EBITDA margin at ICE Futures U.S. was improved by over 20 points and we expect continued margin improvement this year. You may recall that for 2007 we initially projected expense synergies in the $8 million to $9 million range related to the ICE Futures U.S. acquisition. We exceeded that target with realized synergies for the year in the $14 million to $15 million range.

For 2008, we are now forecasting additional synergies of $4 million to $6 million putting us in the $18 million to $20 million range, up from $14 million to $15 million projected last spring. Also as I mentioned previously, our expenses reflect higher cash and non-cash compensation due to the company's results relative to our 2007 performance targets and the performance based nature of our equity program. The impact of this to cash compensation in the fourth quarter was roughly $3 million to $4 million more than a typical run rate we expect entering 2008. We provided guidance on 2008 headcount and non-cash compensation in the earnings release this morning. Operating expenses also reflect the investments we are making to build our European Clearing House, which Chuck will discuss later in the call.

During 2007, we incurred approximately $4.5 million in expenses relating to the development of ICE Clear Europe. This includes $1.9 million recorded in the fourth quarter of this year… of last year. Finally though not reflected on this chart, I want to point out that our fourth quarter results also include $1.5 million in interest expense related to the Russell licensing agreement as we detailed for you last quarter. The expense was nearly offset by a non-recurring $1.4 million lease settlement agreement reached in December.

Now let's move to slide 7 where I'll briefly highlight the few of the drivers of our performance. During the fourth quarter of 2007, ICE's average daily volume was a combined 1.5 million contracts for our Futures and OTC market. As you can see growth in volume and liquidity in our core energy products has continued even during the seasonally slower fourth quarter. We continue to see new customers, electronic trading adoption, increased allocation to commodities, and the addition of new asset classes driving growth across our business.

We made excellent progress in moving the soft commodities futures market to our electronic platform in 2007. Today these markets are nearly 90% electronically traded. In March our U.S. Futures market will join our Canadian and European Futures market in being fully electronic. As you know though options contract will continue to trade in the open-outcry environment at ICE Futures U.S.

Next on slide 8. You can see that the average daily volume for our Energy Futures business at ICE Futures Europe was 550,000 contracts in the fourth quarter, an increase of 25% over last year. Transaction revenues were $46 million, up 21% over the last year’s fourth quarter. For the year, energy futures volumes rose 49% to 138 million contracts versus 93 million contracts in 2006. The 138 million energy contracts also compares to only 36 million contracts traded during 2004, the year before the floor closed in London. Our tenth consecutive year of record volume was driven by continued strength in Brent, WTI, and Gas Oil Futures. Rate per contract or RPC for ICE Futures Europe was a $1.27 during the fourth quarter compared to a $1.29 in the third quarter.

Now let's look at activity at our ICE Futures U.S and Canada exchanges on slide 9. ADB for the quarter rose to 219,000 contracts per day, up 26% year-to-year. Transaction revenues at our North American Futures exchanges were $27 million. In the fourth quarter, we established new daily electronic volume records for both our coffee, and cotton futures contract. For the year, volume at ICE Futures U.S. and Canada totaled 54 million contracts, an increase of 22% over 2006 level. In the fourth quarter, RPC for agricultural commodities averaged $2.03 compared to $2.07 in the third quarter.

Moving on to our OTC markets on slide 10, you could see that the segment delivered record transaction revenues of $60 million during the fourth quarter, up 33% year-to-year. OTC revenues accounted for 45% of fourth quarter transaction revenue. Clear contracts grew to a record 41 million contracts in the quarter and represented almost 80% of our OTC transaction revenue. The use of clearing continues to affect new market participants to ICE who might traditionally not utilize the market if they were solely bilaterally traded. Following on the third quarter's record performance, fourth-quarter average daily commissions rose 28% to a record $913,000 per day. Despite the seasonally slower holiday season trading and hedging activity remained strong during the quarter.

I would like to close on slide 11 and wrap up the year from a financial perspective. We grew our revenue by 83% in 2007. This revenue growth reflects the addition of four new asset classes and five strategic acquisitions. We saw 49% volume growth in our energy futures business and 22% growth in our agriculture products. Our OTC business enabled by the clear concept we pioneered delivered 40% growth in commission. In addition to delivering topline growth we also delivered solid margin improvements and strong cash performance. Our core operating margins including ICE Futures U.S…. excluding ICE Futures U.S. and CBOT related expenses improved roughly 2 points and as I mentioned the margins at ICE Futures U.S. improved significantly over the course of the year.

So, while our combined margins were down due to mix, the underlying margin fundamentals of our business are strong and will continue to improve. Finally, during the year we also delivered a record $288 million of operating cash flows, we have $261 million of cash and equivalents on the balance sheet; we have low leverage and access to a sizable line of credit. We believe our 2007 performance leaves us well-positioned to continue our success in 2008. We've included a summary of the December 31st, 2007 balance sheet and cash flow on page 16 of the earning presentation. We expect to file our 10-K in the next two-weeks. We've also provided certain financial guidance in today's earnings release as well as in the appendix of this presentation. I encourage you to refer to that material for more detailed information and I will be happy to address any questions during the Q&A.

And with that, I would like to turn the call over to Chuck.

Charles A. Vice - Chief Operating Officer

Thank you, Scott. I'd like to take a few minutes to update you on key trading and clearing technology initiatives. These investments sustain our competitive advantage by delivering the technology performance and functionally enhancements necessary for ICE to remain a leader among global derivatives platforms. First we recently announced completion of a multi-year project to upgrade our trading platform and network infrastructure. As a result, average roundtrip transaction time in our futures markets as shown on slide 12 fell to 3 milliseconds, far below that of our competitors. Compared to the average transaction time of more than 30 milliseconds in January 2007, we reduced processing time by 90% in less than a year. And even on a blended basis meaning both Futures and OTC markets, our average roundtrip transaction time dropped to a similarly low 7 milliseconds.

In addition to faster trading times, we further improved the liability by implementing the latest in network redundancy and fail-over technology between our telecommunication hubs and data centers. This upgrade also added system capacity to handle higher numbers of users, messages, and trades all of which continue to set new records each month. Other scalability projects are underway to deliver even greater capacity increases for the trading platform this year. Second, in mid January, we seamlessly transitioned our primarily data centers from Atlanta to a new state-of-the-art facility in Chicago. The larger psychical space will better accommodate growth in our infrastructure and the number of collocated customers. Most important though, the Chicago location makes our market easier and cheaper to access for the very large number of traders there while eliminating any telecommunication latency advantage our Chicago-based matching engine might have had.

Regarding clearing, we acquired our first two clearing houses in 2007 and started the build out of a third ICE Clear Europe. As a result our technology team expanded in 2007 to support existing clearing systems while advancing a number of ambitious initiatives. When we acquired ICE Clear U.S. just one year ago the clearing house served only an open-outcry trading floor with little technology for managing real risk in real time. Within three weeks of closing the transaction not only did we launch electronic trading for the first time in exchange's history but we increased the capacity of the clearing house systems and process to handle the higher number of trade driven by electronic trading.

We also built and launched a new post-trade management system to improve reliability and offer enhanced functionality for trade give-ups and allocations. This system is set to be upgraded again in the second quarter to provide additional back office functionality such as average pricing. With regard to our European Clearing House to be launched in July, most of the systems work is complete. You may recall from announcements last year that two-key systems already used by European clearing banks today will be retained by ICE Clear Europe to ensure a smooth transition, both are provided by third party Atos Euronext also known as AEMS. The first of these is a Post-Trade Management System called TRS that ICE already licenses and has used for many years.

The second is a clearing system called CPS that is currently used by ICE at the London clearing house but it's now been licensed to ICE for its own production use. Integration of these existing systems with existing ICE Banking Systems is complete with testing well underway. Back end billing and delivery systems are also under development and on schedule. A number of working groups, which include representatives from each clear have been meeting regularly to review plans and provide feedbacks. Connectivity and system testing with members will begin in February and we remain on track for a July launch and transition.

We filed our FSA application in 2007 for recognition of the U.K. Clearing House and all follow-up questions from the FSA have been answered. From an organizational perspective Paul Swann, President of ICE Clear Europe has already filled most senior positions as well as some staffs. The many recent accomplishments of our technology and operations teams are all the more remarkable when you consider that they were implemented with no business interruption while supporting an aggressive M&A strategy. In the last 12 months, these teams integrated three newly acquired exchanges and two clearing houses while completing the majority of the work to start up a third clearing house.

The number of asset classes traded on our platform increased dramatically and so did our functionality for trading house. With the technology spend last year of $31 million and a total capital spend…inception of $80 million excluding capitalized development cost you can see that our technology investments are cost effective and highly productive.

I will now turn the call over to Jeff.

Jeffrey C. Sprecher - Chairman of the Board, Chief Executive Officer

Thank you Chuck. You’ve now heard about our record setting 2007 performance as well as the foundation of innovation and technology we are bringing to bear. I'd like to take a few minutes to talk about 2008. Today, we are solidly positioned for the next leg of growth as a global integrated derivates marketplace. We focused on staying nimble, responsive, and being close to our customers. These opportunities are very motivating for our global teams, which has created one of the most innovative exchange businesses in the world in the space of just 8 years.

As you know, we spent much of the last several years assembling a diverse exchange business with sophisticated but accessible technology to serve our rapidly growing customer base. Our products such as crude oil, sugar, cotton, and the U.S. dollar index are relied upon in dozens of countries around the world. We are truly global as the only derivatives exchanged today with a U.S. European, and Canadian derivatives business in clearing operation. This alone offers us a tremendous amount of flexibility to address the needs of our customers. However, I will give you some additional reasons why 2008 has the making of another landmark year for us.

I won't spend time specifically recounting our five acquisitions, the multiple new strategic relationships, the four new asset classes, and the sixty new products that we added in 2007. Suffice it to say that what we accomplished in 2007 provides a strong tailwind as we enter 2008. I’ll cover a few more of the more obvious growth drivers such as clearing, the Russell indices, and M&A for example. But there are many than we have time for today.

Let’s start with M&A since I view this as core competency of the company. The futures, over-the-counter, and risk management sectors continue to be populated with opportunities and we remain open minded about the ways to enhance our model. We haven't taken our focus off of M&A and just yesterday we signed an agreement to acquire a leading edge options technology called Yellow Jacket. Yellow Jacket offers a unique peer-to-peer quoting system for negotiating structured products like option and will be integrated with our strategy to move the over-the-counter options markets to our screens. Our press release will be released during this call providing more information. This transaction is just one example of how we will continue to be an opportunistic and financially disciplined acquirer.

Next as Chuck discussed, we're well underway with all aspects of execution for our global clearing strategy. We've completed the technology development side and we are on track for integration in the coming months with implementation in July. We are currently in the process of seeking regulatory approval in the U.K. and we hope to have this recognition in the first quarter. We will continue to share additional information with you over the course of the next few months.

Now, ICE pioneered clearing and over-the-counter markets. With our acquisitions last year, we now have our own clearing infrastructure to complement our vibrant over-the-counter and futures markets. We see tremendous demand from our customers and from other markets for additional clear products and services. Today we are in the process of building a well capitalized sophisticated clearing house network. With the innovation we brought to these markets today, we are well positioned to serve additional markets outside of our current product set. Our risk management goals are to provide more products backed by financial safe guards to the growing derivatives markets. Our business goals are to provide more products and services for FCMs and their customers to create new profit opportunities for the industry, which drives our business. At the intersection of these two objectives are innovation and competition, which has been the growth drivers of the global derivative industry.

Another substantial growth initiative is the transition of the US Russell Index Futures market to ICE in 2008. This is another example of leveraging the assets we acquired at ICE Futures U.S. This exclusive arrangement will take us into the growing market for equity index futures. Activity and equity index products has never been greater and last year volume in Russell index futures exceeded 60 million contracts with average daily volume of 270,000 contracts in the Russell 2000 mini in the fourth quarter. We are working to transition some of the Russell volume in advance to the start of the exclusivity period in September and continue to expect volumes to ramp up in the back half. We are making good progress on the transition on a number of fronts. We are forging relationships with many of the key users who are active in Russell Futures. We are developing cross-margining agreement and other incentive programs and we are developing new functionality to support additional strategies in these markets.

So, we have talked a bit about some of the bigger picture initiatives where management is spending our time. However, equal among them is responding to the organic growth opportunities in our core business, which is extremely robust. In fact for the month of January we are on track to achieve a record-breaking month in both OTC and Futures businesses. Our US and European exchanges experienced daily volume records this month. Based on the knowledge we have gained from our customers in the daily operation of our markets we continue to believe it's early in the long-term development and expansion of commodities as an asset class. We continue to see solid growth as a result. We have seen little if any evidence of liquidity issues in our markets. What we have seen in our energy markets are high prices followed by recession fear, which has led to volatility that is inherent in the energy business. Amid this market turmoil, we still hear financial institutions expressing a desire to expand their commodities trading desks.

In addition to those we have discussed, we have a number of other initiatives underway for this year. In February, we will begin hosting NGX's markets on our platform. This transition will bring key energy traders from Canada on to the ICE platform. An important for the first time, NGX will also begin clearing physical gas products in ICE's U.S. markets. Also in February, we will expand our risk management services with the launch of ICE Risk. For the first time energy market participants in the futures and over-the-counter markets will have access to a real-time risk management package that’s integrated into the ICE trading platform. This business is a result of our acquisition and integration of [inaudible] track last year. This year we also intend to have marked the potential in the foreign exchange market at our U.S. Futures business. This is the world's largest traded segment and we have a strategy to serve the unmet institutional needs of that market.

Last year, we expanded our relationship with McGraw-Hill Platt to include not only assessments of the physical oil markets on the ICE platform but partnering in the forward pricing curve business as well. These industry relationships and OTC services are a valuable part in ICE's total value proposition. We also continue to put a lot of energy and focus on expanding into energy and commodity options. Our acquisition of Chatham Energy in October has gotten us into this space and together with the in-house option technology that we are developing and our recent acquisition of Yellow Jacket, we are looking to capitalizing on the combined expertise. We will have further updates throughout the year in this area.

Finally, I would note that we expect our substantial technology enhancements to support more activity in our markets, whether it's through faster trading times or increased distribution. We are seeing the same healthy customer pipeline that we've seen in the past couple of years. So we'll continue to scale our infrastructure accordingly. In closing, I think you can see the breadth and the depth of our markets and it speaks to our ability to grow and serve our rapidly expanding number of customers. The opportunities before us are numerous and truly exciting. ICE has never wavered on its entrepreneurial approach to building a business.

As the founder of the company, I can tell you that each year it remains exciting for me as an entrepreneur surrounded by other entrepreneurs, because of the unique approach that we take to century old businesses. We've managed to resist the status quo and use our differences as strengths. And as a result, we remain on the leading edge of tapping new markets, new technologies, and identifying growth opportunities. We believe our unique combination of futures and over-the-counter products plus clearing technology, and risk management makes us extremely well positioned to grow and serve these new customers.

As always, I'd like to thank our ICE employees and our customers for a very strong quarter and for meeting the challenges of a very demanding year. This concludes our prepared remarks and now let me ask our operator Felicia to queue your questions.

Question and Answer

Operator

Thank you. [Operator Instructions] We'll go to Daniel Harris of Goldman Sachs.

Daniel Harris - Goldman Sachs

Thanks very much. I guess, I'll kick it off Scott, if you can actually go through that Q&A part regarding the change in the compensation loss regarding the non-cash expenses? And may be in addition, it still looks like the comp was much higher than we have seen in the past few quarters, and is this fourth-quarter found something that we should expect in fourth quarters going on, or you think you guys will try to manage that pen more smoothly expenses throughout the course of the year?

Scott A. Hill - Chief Financial Officer

Yes. Good. Those were good questions, Daniel. Let me try and hit them. So, the first thing, there are two factors that are at play. First as I mentioned in my opening remarks the performance-based culture at ICE is reflected in our award in our compensation programs. And so, for across our employ population, our annual cash bonuses are set relative to certain performance objectives and our equity award programs also have a performance element in many of those programs. And as we closed out a really strong year with a really good fourth quarter, we ended up having to recognize a higher level of expense in the fourth quarter to reflect our performance relative to target. In addition to that, as you may know the relevant accounting instruction around the equity award is FAS 123 and for plans where you have a performance element and a time vesting it's required that you book an acceleration of those expenses. So our employees will vest in certain of our equity awards over three years evenly, but the accounting is to record roughly 60% of that expense in the first year.

And so, those came together in the quarter to increase the expenses relative to prior quarter. And getting to your last question, as I said in my remarks, there was roughly $3 million to $4 million in the cash compensation in the fourth quarter that I do not think is reflective of an exit run-rate as we go into 2008 and I also think that similar amount $3 million to $4 million in the fourth quarter from a non-cash compensation but what I would point you to is the guidance that we provided. So, we at the end of the year had a roughly $24 million in non-cash compensation and our view for next year is it will be somewhere in $32 million to $34 million range as we mentioned in our press release this morning.

Daniel Harris - Goldman Sachs

Okay. And so then if we decided to try and take a more straight-line approach to that rather than seeing this fourth quarter that is probably the better way to think about it?

Scott A. Hill - Chief Financial Officer

For non-cash it is and for cash it would be the $3 million to $4 million I've mentioned, I would adjust for that before I did any p times q.

Daniel Harris - Goldman Sachs

Okay. Great. Chuck, I was hoping that you could talk a little bit about the difference... what we are seeing in your OTC commissions relative to what we may be seeing in the underlying futures business and sort of the crude in the knack-half [ph] year here in January based on your comments that you guys are reaching record levels in January, just sort of backing in what those numbers maybe, it only seems that you are growing bigger and faster than the underlying markets. I was hoping you could just comment on the differences and what we should be expecting there?

Charles A. Vice - Chief Operating Officer

Sure. And I think I did try to suggest to you in my prepared remarks that we're having a very good OTC month. We get a lot of questions suggesting concern in that area. And as you know we put over OTC numbers out each month two days after the close of the month, and so you will have complete transparency in a couple of days. The obvious trend that you are aware of is the secular growth drivers that are going on in the growth of commodities to globalization, the number of new users and increased volatility, and we've been able to bring a lot of new users into these markets. What I think specifically how are we doing this may be relative to peers and expectation is we really have a very sophisticated technology for dealing with the over-the-counter market. These are not futures market, and we offer bilateral trading as you know, as well as cleared market. We are putting increasing risk management into the OTC markets and one of the reasons that we decided to buy [inaudible] is that these over-the-counter markets are very complicated and it’s very hard for people to get good risk management and we are making it easier and easier for them.

We’ve got really good customer relationships as you know, and we were really a company that was started with the… in conjunction with the energy industry. And these little deals that we were indicating to you that we were doing last year NGX, Platt, building out our back-office confirmation system and so on and so forth are in any one case not necessarily revolutionary, but in total they continue to open up new avenues to bring in new customers and are very, very sticky for us, and that's just something that we have. You see separately that Scott pointed out to you that the data revenues in the fourth quarter were exceptional. This is an indication of more people wanting more data at higher prices to do more analytics and particularly in these niche over-the-counter markets where we have very, very strong distribution and technology relationships. I think I tried to indicate to you in our prepared remarks that now we're bringing physical clearing to the U.S. in some of these markets. This is something never been done before in the U.S. We’ve got this new access to Canada through NGX and so on and so forth. And all of these things we continue will be strong drivers.

We have also made a concerned effort as I pointed out to get into the OTC options business. The acquisition yesterday of Yellow Jacket that we mentioned and our previous acquisition of Chatham Energy is helping us there. Yesterday Chatham had a record for us. We continue to see growth in those regards. So I think it's all of these… it’s no one thing, it's the combination of all of those trends and the way my colleagues have been executing in integrating and distributing that business.

Daniel Harris - Goldman Sachs

Great, Thanks. That was helpful. And then just lastly here, can you comment a bit on the trends we're seeing in January in the ICE U.S. businesses? Sugar volumes obviously have been significantly higher and I think we've seen in the past and it's certainly looks like there was not a standard bump in the middle of the month. And just lastly on that, I'm not quite as clear can you comment a little bit on the different roll months impacts that may impact that business? Thanks a lot.

Jeffrey C. Sprecher - Chairman of the Board, Chief Executive Officer

Sure, I think certainly sugar was volatile but it's really a lot of our soft Ag commodities have been very, very volatile. I think it's a combination of things, one is these things are electronic now for the first times. So the distribution is gotten better and price expressions can be more immediately transferred into a market with electronic trading. And while those... the volatility may have been there, it gets dampened by floor and the ability to distribute the data out to people. So that maybe some of it and may just be inherent in electronic trading that people are reacting to the same news at about the same time.

Other than that, we did take some action as an exchange in the month. I can't talk specifically about them other than we were required by our rules and law to take certain actions as we got very volatile markets. And so that maybe the inputs of what you are referring to. But beyond that, I think we just are in a period where agricultural commodities are in a growth cycle. I've been bullish on Ag I've said that before I said it in connection with some of our other attempts to get into the Ag markets. And I think that these are truly global products that have truly global demand and they lend themselves to the kinds of things that we do in these secular trends that are going on.

Daniel Harris - Goldman Sachs

And then just anything on the roll month, is that not an impact here in the Ags?

Jeffrey C. Sprecher - Chairman of the Board, Chief Executive Officer

Yes. These Ag products, they are unique and that they are not necessarily monthly rolled, they have different settlement periods. We are moving into the expiration period of sugar where it will go into fiscal delivery and the exchange rules will push out speculative interest through position limits and roll into delivery. So, you're in… that’s a March contract, but you're seeing people adjusting their position as we get closer to that fiscal delivery. So again that is one of the things that drive volumes in the... just prior to a roll month and also any volatility in that period will exacerbate that trend.

Daniel Harris - Goldman Sachs

Right. Thank you.

Operator

We will go to Howard Chen of Credit Suisse.

Howard Chen - Credit Suisse

Good morning everyone.

Jeffrey C. Sprecher - Chairman of the Board, Chief Executive Officer

Good morning.

Scott A. Hill - Chief Financial Officer

Good morning Howard.

Howard Chen - Credit Suisse

Jeff, now that it is official that few of your major competitors are in a merger discussion. Can you share with us your initial thoughts on how CME NYMEX combination translate back the competitive landscape ICE is positioning within that and maybe your thoughts on future major deals within this space?

Jeffrey C. Sprecher - Chairman of the Board, Chief Executive Officer

Sure. My guess… you are probably aware that ICE as a public company has never had an open-outcry trading for in energy and so we have only been in electronic energy market in that space and so we have been competing in energy vis-à-vis NYMEX against them on Globex now for two years. And so this looks like it is an event for NYMEX shareholders; it does not seemingly change the landscape in terms of the way we go to market in energy in the way that NYMEX is increasingly going to market as an electronic participant. I think that again we have very strong customer relationships, will really help build this company by the industry and we have always been at a competitive disadvantage when there was a floor-based exchange, because we don't have a floor, we don't have the brokers that are on a floor, we don't have that information that disseminates off of a floor. As that is diminishing and becoming less important, we are now able to use the strength and the techniques that we have as an electronic marketplace to enter the energy space against something that looks very similar to what we are doing. So, I am bullish on it.

Howard Chen - Credit Suisse

Okay. Great thanks. That’s very helpful. And Chuck on… with regards to ICE Clear Europe thanks for the update; you mentioned that system testing will begin in February. My question is how widespread you anticipate that testing will be among your customer base and what exactly will that testing entail?

Charles A. Vice - Chief Operating Officer

Yes. I expect it to be very widespread. We've had an operations and technology working group that's been at this for a while. Because we are using some of the same systems that I described provided by the same vendor in the same data center, same environment, a lot of the testing is really one, just to confirm that everything that works for them today will work tomorrow and than that the kind of the GAAP testing there is on the backend, reports are around banking and billing systems. So we built an interface to make sure that, did they get the same data in the same usable format from us that they are getting today from other systems. So that's going very well. Our team in London actually went out and met with each Clears’ team individually to help them design test scripts for their specific business depending on what customers they had and what products they traded and what their typical use was so that they could focus their resources better on during that two-month test timeframe on to things that are important to them if they want to Clear all products and add a lot of customers that we’re teaming with the delivery with these products. So that is going very well, we expect it to kick off on time and to finish on time.

Howard Chen - Credit Suisse

Great. That's helpful thanks Chuck and then Scott two quick ones on the numbers, apologies if I missed these in the prepared remarks, but is the lower tax rate for this quarter and what you have been experiencing that more a function of the work that your team has been implementing, is it product mix or is there something else that we are missing here that maybe reserves itself and brings you backup to the guidance range that you have articulated for '08?

Charles A. Vice - Chief Operating Officer

As you might have imagined, there are a number of factors that go into the determination of the tax rate. I mean just as an example, with the acquisition of the Winnipeg Exchange and the accounting for that as we looked at the recent announcements on Canadian tax rates going forward, that has an impact on the deferred tax liability we booked in. So as we made that adjustment that brought us down slightly under the low-end of the range that we had guided. As I look forward you have noticed we have been fairly constant in our guidance at 34% to 36%. Again there are many factors that play there, there is business mix, improving profit in New York which is relatively higher tax rate. The U.K. and Canadian governments have suggested rate will come down in '08, so as you mix all of that in, it’s best I am able to tell based on our projections for the business, I still think the 34% to 36% range is where we are most likely to land.

Howard Chen - Credit Suisse

Okay and then final one. Can you let us know when the market data of the schedule adjustments went into play during the quarter? I guess what I am trying to get at is do we have a full quarters impact of these schedule adjustments?

Charles A. Vice - Chief Operating Officer

I am sorry to interrupt. Yes, we do. With the full quarter it went into effect October 1.

Howard Chen - Credit Suisse

Okay, great. Thank so much.

Charles A. Vice - Chief Operating Officer

Thank you.

Operator

And please limit yourself to one question. We will go to Richard Repetto of Sandler O'Neill.

Richard Repetto - Sandler O'Neill

Hi guys.

Jeffrey C. Sprecher - Chairman of the Board, Chief Executive Officer

Good morning.

Richard Repetto - Sandler O'Neill

I guess just a more direct question to something that was asked earlier. CME NYMEX you definitely got involved the last time the CME made an acquisition. What are your thoughts of being involved this time?

Jeffrey C. Sprecher - Chairman of the Board, Chief Executive Officer

Well I can't, this is Jeff. I can't comment specifically on M&A activity but given the policy we have here. But I will point out a couple of facts that are simply facts. One is it is been widely reported that NYMEX has been available for sale for a quite a long time. And it presents quite an opportunity for people interested in the business to have thought about it and review it and we are happy. So the fact that it’s finally traded to somebody in and of itself was not a particular surprise.

Richard Repetto - Sandler O'Neill

Understood. I guess I interpreted that there’s has been opportunities in the past but since it was a property that was sort of well known to be in discussion I guess.

Jeffrey C. Sprecher - Chairman of the Board, Chief Executive Officer

Yes I think we’ve had opportunities as anyone in the market for quite sometime, there is nothing in my mind compelling about the timing of this merger announcement for ICE.

Richard Repetto - Sandler O'Neill

Okay, understood. I do have one other one; I just really want to get in. Chuck talked about the clearing system the TRS and the CPS system and we have done a little work here. It is very interesting that you use it plus also the London clearing house uses it as well as life. And I am just trying to see, one, what is the strategic value, because I think there is some, in using it? And then tying that... I got to get this question on project Rainbow. If they ever wanted to try to the consortium that suppose would be put together like they ever wanted to compete with you when you do move open interest from LCH, what would be your likely response there?

Jeffrey C. Sprecher - Chairman of the Board, Chief Executive Officer

Let me answer the first part. Chuck did mention TRS and CPS are owned by a French company called Euronext Atos Market Solution AEMS and you may have seen recently that the New York Stock Exchange NYSE Euronext. When John Thain was there, one of the acts that he did was to buy out both the light connect trading platform and all the related clearing systems from that joint venture company so that they’re now under the control of Euronext life. We licensed those technologies and in fact Duncan Niederauer and I have had a number of meetings and continue the work that John Thain and I were doing to make sure that we have access to those technologies. I guess anyone seeking to use them will have to deal with Euronext life if they would seek to license them.

So, if my relationship with NYSE Euronext is quite good and our exchange in Europe and life have been really brother and sister exchanges have grown up together in the London markets we have a lot of friendships and relationships and worked together on a lot of common initiatives in the European landscape. So, we feel quite good about the fact that they have taken control of this technology.

Operator

And again please limit yourself to one question and one follow-up. We will go to Ken Worthington of J.P. Morgan.

Ken Worthington - J.P. Morgan

Hi, thank you. Just kind of harping on the ICE Clear, maybe for Chuck. What are the big milestones if you can buck them into big milestones over the next six months or so? Included in that is like what regulatory approvals are still needed? You mentioned the FSA, are there others and what is the expected timing on the FSA approval?

Charles A. Vice - Chief Operating Officer

Well, as I said, the FSA application is there and the FSA visited us in New York and Atlanta, did extensive due diligence, came back with follow-up questions. We've responded to all of those in writing. They've given us the indication that they have all the information they need and we are expecting to hear from them in February. The [inaudible] trading is another regulatory approval that is ongoing and I think that process will play out in February as well. From a systems perspective, I gave you some timeline there. Remember testing will begin in February and in April we are already… we are staffing up in Europe. We filled key roles. We purchased production hardware and moved it into our data centers. So, all that is moving very well.

We are also from a business perspective we are firming up the commercial terms around clearing membership agreements. Our team in London and in Chicago has visited extensively with the Clears over the last few months and are firming up what those terms will look like and expect that to move to fruition over the next month or so as well.

Ken Worthington - J.P. Morgan

Thanks. Has LCH signed off on the transition plan yet?

Charles A. Vice - Chief Operating Officer

We are one of the obligations of LCH. There is clearing agreement between LCH and ICE, which is obviously confidential. There are I believe some redacted versions of those agreements that we file with the SEC. But suffice it to say that we and LCH have been sitting down negotiating what's called the exit management plan, which is called for in the agreement and all the details of how that will work and that's still in progress.

Operator

We'll go to Jonathan Casteleyn of Wachovia.

Jonathan Casteleyn - Wachovia

Hi good morning. My question is for Jeff. I am just wondering if you can provide some perspective on the pretty flat trends in open interest in your ICE Futures European business?

Jeffrey C. Sprecher - Chairman of the Board, Chief Executive Officer

Sure. It's a good question and one that we hear people looking at. Let me just say as a start-up, broadly as open interest increases it’s a good thing for exchanges and it’s representative of more people with more position and is a say... one of the things that you want to make sure is it got healthy trends. But, on an individual basis open interest can go up and down in any month irregardless of growth trends and that's what happening in… we believe in our U.S… our U.K. Futures Exchange, which is an energy and oil-based exchange.

I think... first of all let me say there, we see nothing structural that is leading to the open interest trends that you are referring to. What we see and we talk to a lot of our customers about their trading behavior is that the oil industry, which is a frankly a very conservative trading industry because it is where our [inaudible] contract is really the marker where the world's oil prices is set. And oil companies in setting the price of oil tend to have a pretty conservative trends and so what we had within the fourth quarter was... was a $100 oil situation, tremendous price growth and volatility on the upward side followed immediately by calls of potential world recession and calls for the U.S. Fed to change its interest rates, which could potentially affect the value of the dollar and around the world oil is denominated in dollars. So one of the first trends, if you look at our numbers that you'll see is that many of the short-dated positions that are held by the oil industry fell starting late last year and into early this year as we were going through this mindset change of whether are not oil is going to be fabulously rising or whether it's going to be crashing in a world recession and whether or not the Fed was going to take minor action or dramatic action and change the value of the dollar.

In the last... more recently in the last few days, you see the open interest coming back in and I think as people... it appears that people are getting an answer to that question and setting a position. But what's interesting is those kinds of trends of $100 oil immediately followed by calls for world recession are very model and so we had a record trading business and what you have is people who are speculating and trading on those short-term trends but aren't necessarily taking a long-term view where they want to hold the position and they really doing the more inter day and short overnight position trading as opposed to holding a position.

So, one way I think, we see nothing structural it is not in our minds that any kind of de-leveraging is not linked to directly to any individual's credit issues, it simply a conservative interest… industry watching on the sidelines. It moved from Brent into WTI. WTI is really the world's speculative oil contract, it's the price of U.S. oil, U.S. just happens to have more hedge funds and other speculators and more of the funds that do long-only trading where they have oil as part of an index for example that rolls is benchmarked with WTI. So when the oil industry moves out of WTI, it's harder to see because it is mapped by these other types of traders that are in that business but the Brent is really the oil industry's contract and so, you pretend to see these kinds of trends first there.

Scott A. Hill - Chief Financial Officer

And Jonathan, if I could just add, just a couple of numbers. If you look at the total volumes growing 3% to 4% underneath the cover the gas oil growth remains very strong. The comparisons for Brent and WTI are against frankly our best WTI month ever last year and our second best Brent month and we're headed towards establishing a new Brent record in the month. So, if Jeff talks about the dynamics, if you step away from the growth and pull back the covers a little bit, you can see that the demand for the products and the volumes that are trading are at or near record levels in a number of our products.

Jonathan Casteleyn - Wachovia

That makes sense, thanks for that. My follow-up question is for Chuck and I'm just curious, you put through a litany of upgrades on the technology side and just in the past, as you layer on new technology, is there any way to enumerate the impact on trading volume, or how do you think about that or is it more of a customer experience, just trying to enumerate your work on the technology side?

Charles A. Vice - Chief Operating Officer

Well, I think Jeff said a little bit earlier about these acquisitions we made in '07, some of them technology related, some not, you started to see cumulative effects over time, it's harder to break one out and isolate it. I think as we're doing the things we're doing for the Russell Index, the cross-margining arrangements, you can certainly track the progress of that individually. In our NGX technology arrangement there, you can track... given that their NGX market that they report separately you can track how that's doing as well.

One of our big initiatives this year will be continue building out the options platform. We do have our energy options that trade on the platform, there is functionality, there is some volume there, it's quite low and over the course of the next seven or eight months, culminating at the end of that period, we will be making a number of upgrades to the platform for options trading where we get ... when we get to late summer, platform will have more of the mass quote capabilities, high-volume messaging, delta protection for market makers, price level distribution, user-defined strategies for options, things like that, we'll be coupling that in creative ways with this Yellow Jacket acquisition we just made to give people a portfolio tool to use in trading options given that, when you look around in electronic options trading, they aren’t beyond the equities world and the derivatives world there are not tremendous examples of overwhelming success with the mass quote type of trading and option. So what we are trying to do is rather than force fit everybody into that, we want to have that avenue as well for trading but we want to couple that with some other types of front-end technologies that recognizes the complexity of options trading and give people some choices.

So that is the technology improvement that will going on over the next 7 to 8 months and then the new products will be layering on top of that, of course will be launching the ICE Clear… ICE Futures U.S. Ag options and the Russell options. We haven't announced the date yet but that should be coming up in the next 60 days or so.

Scott A. Hill - Chief Financial Officer

One other thing Jonathan that I think about the value we get out of the significant enhancement in the technology space, the ease of access, the speed of access you look back at the beginning of the year, we were at or near 6,000 simultaneous accesses at time, by the end of the year we were above 8,000. Behind each of those accesses can be multiple user. Those are platforms, it’s easier to access, as it gets faster, we were able to add more and more users who can trade our products.

Operator

We will go to Chris Allen of Banc Of America Securities.

Chris Allen - Banc Of America Securities

Hi, guys, how you are doing.

Charles A. Vice - Chief Operating Officer

Good morning

Chris Allen - Banc Of America Securities

I just want to circle back on the compensation specifically, the non-cash compensation, I apologize, I missed this, can you just explain like whether that’s primarily related to bonus payments or is it just part of overall compensation? And then why... you’re implying with the numbers given is going up plus 39% year-over-year next year, why it would be going up so much?

Scott A. Hill - Chief Financial Officer

So the first part again there are two factors at play with the non-cash compensation are first, the performance-based awards which… our performance as we closed the year was very strong and so the value of those awards that we provide to our employees was higher and we had to book the additional expense. That’s exacerbated by the accounting that guides you to... frankly as you have a performance-based and a time element to your plan requires you to book the expenses on an accelerated basis. So while our employees are vesting one third every year, the accounting recognized 60% of the expense impact in the first year. So over the three-year period it has no impact, but you recognize relatively more. So to the extent we did better than our performance targets which we did that impact is multiplied by the fact that we have to recognize more of the expense in the year.

And as you look forward in terms of where our guidance is, if you have a similar impact, we continue to have because as I mentioned earlier ICE is a performance-based culture we've got performance-based awards that we’ve granted going into the year. That will also have this accelerated function and expense. And in addition to that there is not a year that drops off so in terms of the new program that's all incremental from a year-over-year basis. There is not a plan that existed previously that is now run its course so all of that result in the non-cash going up.

One thing I would like to point out is, if you want to get a view of the performance in the fourth quarter relative to the third, take that a little bit non-cash noise, I'd point you to the operating cash flow. We did over a $100 million in operating cash flows for the first time in the company. Operating cash flows were up $12 million from where they were in the third quarter. And so, I think that gives you a good perspective of the true cash-generating power of our model.

Chris Allen - Banc Of America Securities

And how we should think about the level of performance dividends, is it going to be… match it with operating cash flow?

Scott A. Hill - Chief Financial Officer

It's based on our primary measures of net income and EBITDA and revenue and then there’s also the qualitative measures... each of it has MBOs that were responsible for. An example of a big one in '07 was the integration of our acquisitions, as we move into this year obviously Clearing, Russell options technology are some of the big objectives that will go along with our EBITDA, net income, and revenue objective.

Operator

We will go to Niamh Alexander of Keefe Bruyette & Woods.

Niamh Alexander - Keefe Bruyette & Woods

Good morning and thanks for taking my question. I would like to focus on the Russell and I guess there is two parts to it and the expense guidance for the depreciation… thanks for giving us that but should I also be modeling a separate line that's... volume driven for patent royalty expenses kind of in-line with the previous guidance? And then, on the revenue side, can you help us think... understand how you are thinking about now may be a Repo contract there, because currently customers on CME will be getting a discounted member rate, so how should I think about that going forward? Thanks.

Scott A. Hill - Chief Financial Officer

So, in terms of the expenses, I think we've provided back in the third quarter, some good guidance on that, and let me see if I can capture most of it here. So fundamentally what you're going to see from Russell in terms of expense is for each quarter you will see give or take a little bit $1.4 million or $1.5 million of interest expense and then starting in the third quarter about $6.3 million of amortization. And that does in fact reflects the fees that we're paying on the volumes that we'll get. So there is no incremental expense that you will need to necessarily model and related to volumes.

In terms of the volume expectations and the rate expectations there are too many factors that I can't predict with regards to timing of the move of the volume, interest on the volume, rates, and the mix of whom I used them. What I would though point you to is the fact that on the CME platform last year, there were over 60 million contracts traded, about 270,000 a day. And I think, you can get some visibility into what the rates were there and those would probably provide the best guidance right now in terms of what your modeling expectations might be combined with Jeff's comments in the remarks that our expectation is that the volumes will ramp in the back half of the year.

Niamh Alexander - Keefe Bruyette & Woods

Okay. That's helpful. So just to be clear then the expense of $6.3 million and the $1.4 million, does not adjust higher if... for example volume comes in higher than you’re currently modeling?

Scott A. Hill - Chief Financial Officer

Yes.

Niamh Alexander - Keefe Bruyette & Woods

Okay, that's helpful. Thanks so much.

Operator

We'll go to Rob Rutschow of Deutsche Bank.

Rob Rutschow - Deutsche Bank

Hi good morning.

Charles A. Vice - Chief Operating Officer

Good morning.

Rob Rutschow - Deutsche Bank

I guess I'm struggling a little bit still with the compensation. If you accelerated the realization of those options costs, but you don't expect the cost to fall going forward, does that mean that you are granting more options at this point that you’re compensation expense is going higher on sort of a per employee basis?

Jeffrey C. Sprecher -

Chairman of the Board, Chief Executive Officer

Let me just… this is Jeff, let me point out one thing is that... of this culture, the culture of this company which is very entrepreneurial, we've done just amazing things and part of it is we pay people in stocks and we reward them for achievement. And last year by any measure was an amazing year. It was amazing, I don't care how you cut it and so, we really rewarded people, we hit all these triggers that basically gave people more options and I'm going to let Scott talk about the accounting treatments there.

But, one of the questions that you are asking really is, do you expect every year to hit homerun and my answer honestly is yes, I really think that's why we're here, I think that's why we've assembled this team, it's how I motivate the team, it's how we recruit people. So I interjected here because you are asking a very hard question with is sort of, do you expect less than stellar performance and our internal expectations have to be no. We expect stellar performance and so, we now… you lay that over on Scott's role, where he is trying to account for that and give you guidance and it's a very complicated subject.

Scott A. Hill - Chief Financial Officer

But, let me just to go directly to your question. As you look into next year, I mean... the accelerated treatment that impacted this year was for the program or impacted 2007 was for the 2007 program. We do also have a 2008 program the accounting for that won't be any different and as Jeff said we do utilize equity as a key motivator for our employees. We've gone even more broad-based in terms of the employees who are going to participate in our performance based awards in '08 versus '07. So, it is a key means of compensation and we look at it along with cash and along with all the other spending elements within our P&L to ensure that as we move forward and as we grow the business we will continue to also do that with a focus on expanding our margin.

Rob Rutschow - Deutsche Bank

Okay. I am not trying to discount your good performance this year. I was more, if you were to have say flat earnings next year what I am asking is would you recapture the increased amount that you're accelerating this year in the subsequent two years of vesting?

Scott A. Hill - Chief Financial Officer

It is a two part of question. So, the nice things about the equity accounting is we made a determination on what our '07 performance was and that is done, and so there is no recapture. That determination has been made. I said that we paid 60% in the current year we will pay about 30% of the value in 2008 and roughly 10% in 2009 so there is no recapture that’ll happen. If we have flat earnings which none of us are even focused on that potential scenario where you would see the impact is our '08 awards will go down significantly because as Jeff said we build plans to hit homeruns not bad ball. And so to the extent that our '08 performance is not good then what you will see is a lower '08 payout relative to that equality program.

Operator

We will go next Edward Ditmire of Fox-Pitt Kelton

Edward Ditmire - Fox-Pitt Kelton

Hi guys. I was just wondering, I think you touched upon earlier, you said there was $3 million to $4 million of cash compensation expense in the quarter that you considered unusual, is that right?

Scott A. Hill - Chief Financial Officer

Yes.

Edward Ditmire - Fox-Pitt Kelton

Could you detail what that is?

Scott A. Hill - Chief Financial Officer

I didn't portray it as unusual, it’s again it is related to the end of the year performance relative to our performance targets and the objectives that we have set and what that fundamentally says is that the $3 million to $4 million as Jeff described is the recognition of a tremendous year and a compensation that goes to our employees for delivering that tremendous year. And so what I suggested was that if you are looking to determine an exit run rate for the year that $3 million to $4 million would not be as reflective of a run rate for our cash compensation.

Edward Ditmire - Fox-Pitt Kelton

Okay. And is there any chance for you guys could give us a sense of trying to understand what kind of performance targets, what compensation and share count would be?

Scott A. Hill - Chief Financial Officer

I mean… again, I go back to the comments that I made earlier and hopefully this will address your question. Our performance target are set relative to our net income and EBITA objectives, our revenue objectives, and various manage... MBO that each of us have which are reviewed and approved by out Board and as Jeff said or frankly our stretch objective to deliver continued growth for the company and improvement in our shareholder value.

Jeffrey C. Sprecher -

Chairman of the Board, Chief Executive Officer

I do think that this year in the proxy materials, we are increasingly trying to articulate this to people and so there’ll be more visibility there and also we will try to guide as best we can as we go forward to the extent that we are exceeding... we are having an exceptional year, I think.

Scott A. Hill - Chief Financial Officer

Yes, absolutely, just as we did in 2007 as we go through the year we will update guidance. And I think a part of your question might have been what our expectation on share account was and that was provided in the earnings release in the presentation for not only the year but also first quarter.

Operator

We will go to Mark Lane of William Blair.

Mark Lane - William Blair

Yes, Jeff, what is your expectation in laying out the commercial terms of the clearing, your clearing strategy in terms of pricing and the different economics associated with it?

Jeffrey C. Sprecher -

Chairman of the Board, Chief Executive Officer

Yes, we haven't done that yet which is why you're asking the question, and we are still developing it really. We have a small group of major clearers that we are working with to try to figure out exactly the economics of the clearing house and not just the economics as to what we charge but really how all the risk dollars flow through the business, what do you do about insurances in this age today when people question various insurance ratings and so and so forth. So there is a lot of work going on the commercial side right now with a small group of people that are highly interested in that profit with us.

We feel comfortable that the guidance that given is still very relevant, which is why we haven't said anything to you specifically about this. I think this is something we're at a point now, where everything is built and the approvals are soon expected. So this is the moment and time when we need to firm that up and we will probably have more to say about it I would think in the very near future.

Mark Lane - William Blair

Is there any competitive advantage to holding on to that, those details shortly before you launch the... officially launch the platform or do you have a problem?

Jeffrey C. Sprecher -

Chairman of the Board, Chief Executive Officer

Yes, particularly to the extent you're trying to do anything unique and novel in the business. So we’ve really focused like I say on the technology side of it, and we have a very large group of clearing firms pretty much I believe everybody that has been working in working groups with us to develop all of the initiatives that is required in terms of rule sets and operation what have you. We pretty much have that done, it was really something we wanted to be able to show to the FSA.

I mean to say as an aside, a lot of people have asked about the timing of these things. The FSA in the course of dealing with our applications has had to deal with the Northern Rock problem, which is a major risk problem that involves many of the people that the FSA is using to help in our application. So, but we feel like they are back on track now and expect that will know the real operational details via this approval shortly.

Operator

We will go next to Mike Vinciquerra of BMO Capital Markets.

Unidentified Analyst

Hi, this is a Joey Miller [ph] filling in for Mike. I was wondering on the off chance that NYMEX became an attractive target for you at some point could you comment on what changes you might expect from the Department of Justice just due to the [inaudible] between your exchanges?

Jeffrey C. Sprecher -

Chairman of the Board, Chief Executive Officer

Well, if you have been covering us for a while you know that I'm not the best judge of justice activity and I am honest in telling you that. So I don't want to speculate on the DOJ, it seems to make its way into headlines and applications and quotations and so once for, I passed on the question but I appreciate why you're asking it.

Unidentified Analyst

Okay thanks.

Operator

We will go to Rich Repetto of Sandler O'Neill.

Richard Repetto - Sandler O'Neill

Hi, I think I got a follow-up that can clarify vis-a-vis this comp Scott. The $3 million to $4 million that is not that you think exceeds the run rate, would that just be the difference between if you recognize a third of it of this in certain base comp, but you haven't recognized 60% would that be, that delta be that $3 million to $4 million we are talking about?

Scott A. Hill - Chief Financial Officer

B that the $4 million we are talking about in non-cash precisely, Rich the $3 million to $4 million in cash comp is a separate discussion.

Richard Repetto - Sandler O'Neill

Right, but the $3 million in non-cash.

Scott A. Hill - Chief Financial Officer

The $4 million that we put in our earnings release and that I talked about my comments you are spot on that is the impact of the acceleration.

Richard Repetto - Sandler O'Neill

Understood. And I know this is going on long, but just one follow up on this, because I didn't get an answer earlier and may be I won't prefer to as Rainbow but if there was a consortium of SEMs Jeff, that was going to try to compete with you with a platform and as you move clearing away from LCH during the summer time that would also likely impact life as well and I was just trying to see what might, what would you predict your competitive response and what might be a competitive response since you have this relationship now with life and you are using the same clearing system?

Jeffrey C. Sprecher -

Chairman of the Board, Chief Executive Officer

Sure I think I don't want to give any play look on how we deal with competition, but let me make couple of points. First of all our agreement with… clearing house obligates them to transition and cooperate with the transition of our open interest to any designated third party clearing house. And so, it just so happened that by using the TRS/CPS systems, we really are already connected to the whole clearing infrastructure, we don't… we really on putting many demands on customers to follow up. In other words the positions are already in TRS/CPS and they are just under the way the technology works going to flow a different way. And we are the licensor of that technology and control the way they flow.

So as to what competitors might do, I mean obviously somebody is going to have to find a clearing infrastructure, they’re going to have find clearing technology they are going to have to find systems and let me, clearing houses, generally it's an open model and there are many people that have, let’s say energy positions for example in the one clearing house. There are many actual energy exchanges in Europe and there are also many of the unit dealer brokers have relationships to put OTC swaps in there and those competitive if you will forces that are around us are already add LCH to certain degree but because of the operation of our contract and the fact that we are a regulated exchange and we have a regulatory oversize of the contracts that we trade that has been kind of an irrelevant… those presence of those people has been a largely a relevant fact in the way we operate, makes sense.

Richard Repetto - Sandler O'Neill

Yes, thanks a lot guys.

Jeffrey C. Sprecher -

Chairman of the Board, Chief Executive Officer

Thank you.

Operator

And at this time I will turn the conference back to Mr. Sprecher for any additional remarks.

Jeffrey C. Sprecher -

Chairman of the Board, Chief Executive Officer

Well great. Well thank you all very much and we appreciate your interest in coverage in us and all the questions about our compensation and we look forward to another good quarter we will be putting our numbers out for the month here shortly and I would hope that you will take a look at those as you do your modeling going forward. So anyway thanks again, we will talk to you next quarter.

Operator

That concludes today's conference. We thank you for your participation.

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