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IntercontinentalExchange, Inc. (NYSE:ICE)

Q1 FY08 Earnings Call

May 02, 2008, 8:30 AM ET

Executives

Kelly Loeffler - VP, IR and Corporate Communications

Scott A. Hill - CFO

Jeffrey C. Sprecher - CEO

Charles A. Vice - COO

Analysts

Howard Chen - Credit Suisse

Daniel Harris - Goldman Sachs

Jonathan Casteleyn - Wachovia Capital Markets

Kenneth Worthington - J.P. Morgan

Richard Repetto - Sandler O'Neill & Partners

Robert Rutschow - Deutsche Bank Securities

Michael Vinciquerra - BMO Capital Markets

Operator

Good day, and welcome to the ICE IntercontinentalExchange First Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Kelly Loeffler. Please go ahead.

Kelly Loeffler - Vice President, Investor Relations and Corporate Communications

Good morning. To obtain a copy of the company's first quarter earnings release and presentation, please visit the Investors and Media section of our website at theice.com. These items will be archived and our call will be available for replay.

Please be aware that our comments may contain forward-looking statements. These statements represent our current judgment and are subject to various risks, assumptions and uncertainties as outlined in the company's filings with the SEC. Actual results may differ materially from those that are expressed or implied in any forward-looking statements. Please refer to our filings with the SEC, including our most recent Form 10-K for a discussion of the risks that could cause our results to differ materially from those described in the forward-looking statements.

With us today are Jeff Sprecher, Chairman and CEO; 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'll now turn the call over to Scott.

Scott A. Hill - Chief Financial Officer

Thanks, Kelly, and good morning everyone. We are pleased to have the opportunity to update you on our record first quarter. We achieved many financial milestones while ramping up several key growth initiatives related to new products, M&A, technology innovation and clearing, and we will discuss each of these in greater detail this morning.

During the first quarter, 130 million contracts were traded exchange-wide, the first time we've exceeded 100 million contracts in a quarter. In futures, average daily volume reached a new milestone by exceeding 1 million contracts in the quarter. And we established another first with OTC average daily commissions exceeding $1 million.

Now, let's dive into some of the details of our strong start to the year by moving to slide four, which highlights ICE's key financial and operating metrics for the first quarter of 2008. Amidst a challenging financial markets environment, ICE delivered record operating results across-the-board. Consolidated revenues of $207 million were up 64% over last year's first quarter, which was the first quarter that ICE Futures U.S. was included in our results. Operating income was up 81% to $144 million, and our operating margin was 70% with the integration of ICE Futures U.S. largely complete. Net income increased 66% to a record $92 million, and diluted EPS was $1.29. First quarter operating cash flow rose to $79 million, an increase of 157% versus $31 million in last year's first quarter. We ended 1Q '08 with $277 million in unrestricted cash and short-term investment. Our debt ratios remained low, and we continue to have access to our revolving line of credit. This healthy capital structure paired with strong growth and solid cash generation gives us excellent financial flexibility. A summary of balance sheet is included in the appendix of this presentation.

Next, on slide five, I'll discuss our consolidated revenue. Our transaction revenues are derived from our Futures segment and our global OTC segment. First quarter transaction revenues totaled $177 million, up 62% year-to-year, and accounted for 86% of consolidated revenue. Market data revenues increased 76% to $25 million and accounted for 12% of consolidated revenue.

Moving now to slide six, first quarter consolidated operating expenses were $63 million, up 34% compared to last year's first quarter. The growth in expense was partially driven by non-cash compensation, which was $7.9 million in the first quarter compared to $3.8 million in the first quarter of 2007. Our operating expenses also reflect $2.1 million of costs relating to the closure of the Futures pits at ICE Futures U.S. These costs were primarily recorded in the compensation line and reduced ICE's reported EPS by $0.02 per share. The closure of the futures pits was an important step in enabling us to deliver the $18 million to $20 million in committed synergies related to ICE Futures U.S. this year.

Depreciation and amortization expenses increased $4.4 million to $10.9 million in the first quarter. This was primarily the result of technology investments and a $1.5 million increase in amortized intangible assets related to acquisition. Operating expense also reflects $2.3 million invested in the continued development of ICE Clear Europe versus only $500,000 in 1Q 2007. So, as you can see, the growth in our expense was consistent with our prior guidance, and directly supports the keys to our continued success, a pay-for-performance culture, new products, improved efficiencies at ICE Futures U.S., a flexible technology infrastructure, and the development of our newest clearinghouse.

Now moving to slide seven, we have included some volatility data. While volatility is only one factor that influences volume, you can see the significant change from March to April. Our volumes across many of our products benefited from increased volatility in the first quarter. As the level of volatility decline on a relative basis in April, so did growth across some of our products. However, while volatility can influence the relative level of growth in the short-term, it is new product, technological innovation, new customers and increased interest in commodities investments that will enable growth over the longer term.

Now, let's flip to slide eight where you will find an overview of our first quarter volume performance. Total average daily contract volume across all futures and OTC markets was a record 2.1 million contracts, up 49% over the prior first quarter. Volume growth remained healthy as a result of new customers and increasing demands for commodity products, the transparency of electronic trading and the addition of new products in markets. As Jeff will discuss, we continue to monitor the market activity for any signs of liquidity issues, but we've not seen any to date. In fact, we've seen indicators such as record levels of trading IDs and system connections and a continued build-out of commodities debt that give us confidence that our markets are attracting new customers and are well-positioned to continue to expand.

Turning now to slide nine, the average daily volume of contracts for ICE Futures Europe was 616,000, an increase of 16% versus 1Q 2007. First quarter rate per contract or RPC for Energy Futures was $1.25. This compares to fourth quarter RPC of $1.27. Growth in our Energy Futures segment was driven by continued strength in our crude oil futures market, with our market share of light sweet crude futures holding steady at a very healthy 50%. During the first quarter, we set a new exchange-wide single day volume record. We also posted record average daily and total volume marks during the month of March for both ICE Brent and ICE WTI crude futures contract. ICE Gas Oil growth was also solid, exceeding 200,000 contracts on a single day for the first time. Finally, we reported April monthly volume this morning in ADV at ICE Futures Europe with 570,000 contracts, up 15% year-to-year and the rolling three-month RPC was $1.24.

Moving to slide ten, you can see the first quarter performance of our U.S. and Canadian futures exchanges. RPC for agricultural commodities futures in the quarter averaged $2.14 compared to $2.03 in the first… fourth quarter of 2007. ADV was 389,000 contracts per day, up 77% year-to-year. We made significant progress in ramping trading volume as our agricultural futures contracts completed the rapid transition to fully electronic trading. We set new volume records for sugar, cotton, coffee options, Russell, and the U.S. dollar [inaudible]. Also, today we reported a three-month rolling average RPC for our U.S. agricultural futures of $2.16. Our April ADV at ICE Futures U.S. was 280,000 contracts and at ICE Futures Canada it was 15,000 contracts.

Our Canadian futures exchange continued to perform well and we're pleased to welcome Brad Vannan as the new President of ICE Futures Canada. The potential for continued in our agricultural futures market is excellent and is driven by the long-term secular fundamentals as well as the successful transition to electronic trading. In fact, since we introduced electronic trading at our U.S. Futures business just 14 months ago, we've seen a 57% increase in ADV. While it remains very early and we’ve just transitioned to all electronic trading in March, we see continued long-term interest by new market participants who are joining these vital markets. This is not dissimilar to what we have seen as our energy markets transition to the screen over the past few [ph] years. We believe algorithmic traders, banks, and commercials alike will continue to enter these markets based on the pipeline we're seeing today.

Let me now wrap up on slide 11 with our global OTC business, which has had a tremendous start to the year including record transaction revenues of $80 million in the first quarter, up 69% year-to-year. OTC revenues accounted for 45% of first quarter consolidated transaction revenues. Cleared contracts grew to a record 60 million contracts in the quarter and represented 89% of OTC contract volume. This performance demonstrates the value that central clearing can bring to the over-the-counter market. However, we do not believe these benefits are unique to energy and are confident that we can bring these same benefits to OTC markets outside of energy.

For the first quarter, average daily commissions rose 70% to a record $1,280,000 per day. Also this morning we announced April average daily commissions of $1.3 million per day, almost double the commissions achieved in April of 2007. Though we often see a shoulder month level of trading, which tends to feature less volume in the March to May period, we have not yet seen this occur this year. We continue to see increased trading and hedging activity and deep liquidity in our OTC markets. Our recent acquisitions and partnerships, including Chatham, ChemConnect and NGX and Platts are making solid incremental contributions. While our commercial customers, including gas and power utilities, distribution companies and global energy majors continue to be our primary participants in these markets, we also see healthy growth from proprietary traders and algorithmic customers. Our OTC customer mix in the first quarter was essentially in line with the customer mix we reported for 2007.

So as you can see, we achieved a number of key milestones in the first quarter, both financially and operationally. While we do not believe that our first quarter numbers reflect any evidence of a credit-induced slowdown, we do believe that where possible traders are better managing their overnight positions due to higher margining costs with the effect of dampening of the next level.

In crude oil for example, the presence of record prices has caused banks and oil majors to think about new hedging strategies. We don't see the need for risk management abating in the near term. However, we do see market participants thinking about the price direction of oil and other commodities and adjusting their behavior accordingly. As we’ve said before, the driver of volume is volatility, not extremely high or low prices.

Before I hand it over to Jeff, I would like to point out the additional financial guidance in today's earnings release as well as in the appendix of this presentation. In particular, please note that the amortization expense related to the Russell agreement will now begin in September in conjunction with the start of exclusive trading in ICE Futures market. Thus, the third quarter amortization expense related to the Russell contract will only be roughly $700,000, which is a decrease from the guidance of roughly $6.5 million that we gave you on our last call. Beginning in the fourth quarter and continuing in subsequent quarters, we expect $6.5 million in quarterly amortization expense. Please refer to the earnings release or the appendix of this presentation for additional guidance.

I'll now turn it over to Jeff.

Jeffrey C. Sprecher - Chief Executive Officer

Thank you, Scott. Good morning, everyone. I would like to start off my comments this morning with an update on our European clearinghouse. Our global clearing strategy is innovative and is exciting, and it's an initiative that all of us at ICE are involved in to ensure its success. While we await the final approval for ICE Clear Europe, we understand that both the Financial Services Authority or FSA and the Office of Fair Trading known as the OFT have submitted their recommendations to Her Majesty's Treasury. We are told the Treasury will issue a final recommendation shortly. We've become actively engaged with the FSA with regard to the post-recognition operational requirements that are needed for our July launch. We view this ongoing dialogue positively and we continue to work closely with clearing firms and outside venders alike. Importantly, we continue to receive the active cooperation from our clearing firms. Our trading customers, who value the breadth and depth of ICE's global market have been supportive of our efforts and look forward to the completion of the transition. We’ve built a world-class team of clearing professionals supported by one of the best technology teams in the financial services industry. As a result of these factors, we are confident that we will achieve success in building the first new major derivatives clearinghouse in London in more than a century.

While we announced plans to establish our own clearinghouse in Europe one year ago, you may be aware that our goal to establish a European clearinghouse extends back for many years. Through our approach to product development, customers and third-party relationships, we've long held innovation as a vital aspect of our business. Once we receive regulatory approval, it will allow us to formalize our clearing membership, enabling the transfer of open positions in ICE contracts to ICE Clear Europe. We are on track to complete this transition in July of 2008. We're focused on providing what we believe to became one of the most modern, secure and efficient clearinghouses in the world.

To give you a more detailed picture of where we stand today in the development of this clearinghouse, I would like to turn it over to Chuck Vice, our President.

Charles A. Vice - Chief Operating Officer

Thanks. Jeff. Good morning everyone. To recap our progress to date in the formation of ICE Clear Europe, last July we provided 12-month notice of termination to LCH for clearing both our European Futures and OTC businesses. The same month, we filed our application with the FSA for recognition at a U.K. Clearinghouse. While working through the regulatory process, we have been engaged in extensive discussions and systems testing with our clearing firms. We have achieved numerous milestones as we approach the launch date, as you can see on slide 13 of the presentation. I'll highlight some of the key operational aspects for you here.

In terms of staffing our clearing leadership team, we've added some of the top people in this space. Paul Swann, a 20-year veteran of the clearing industry is leading our clearing effort in Europe. Paul joined our Head of Legal, Patrick Davis; and our Head of Regulation, Dee Blake, who was previously with the FSA. Working with Paul are Markus Konz as Head of Risk and Stuart Bailey as Director of Risk. Prior to ICE, Marcus served as Risk Manager for Eurex Clearing and Stewart was Manager of Risk at LCH. Prince Walterpat [ph] has joined us at the Head of Operations from Calyon Financial and heading up Banking and Treasury is Camille Janmat [ph] who previously headed Operations and Account Management at CathBank [ph]. This is just part of a dedicated experienced team that comprises ICE Clear Europe. This team with support of ICE staff at Atlanta and New York has been leading and managing among other things the necessary technology integration. And at this point, tests of all trade registration, clearing, banking, and billing systems have been completed by over 40 clearing firms.

On the regulatory front, our recognition process began with the application to the Financial Services Authority last year. The FSA has now completed many months of work examining governance, risk, and operational aspects of our proposal. Concurrently, the Office of Fair Trading was evaluating whether the formation of our proposed clearinghouse would be anticompetitive. As Jeff mentioned, both have submitted their reports to Treasury for final recommendation.

From a governance standpoint, ICE Clear Europe has installed an Independent Board led by Sir Bob Reid. We have a solid operating structure to provide for both independence and clearing firm input. This includes a technical and operations working group, a risk working group, and a legal and regulatory working group. These groups are composed of clearing firms who currently clear ICE's markets at LCH together with ICE staff. Working together they have developed the policies and procedures for the clearinghouse, including among other things the clearing member agreement, guarantee fund structure, large position monitoring and the clearing rulebook.

The risk management systems and processes are in place to provide the most sound, well capitalized clearinghouse we can offer. The default fund will include a substantial contribution by ICE expected to be approximately $100 million, which will help mitigate the contribution required by clearing firms. Importantly, ICE is offering clearing members above-market returns on both their guarantee fund and margin deposits. ICE Clear Europe also intends to provide third-party default insurance of $100 million.

In terms of clearing fees, the fee structure per customer will be competitive with the industry. Based on the significant progress, the membership packages, which include the clearing member agreement, the complete ICE Clear rulebook, the financial and governance structures and the membership standards have been completed. Because of our working groups who are extensively involved in the development of many of these processes and documents, the perspective members are already familiar with this documentation.

In summary, over the next two months prior to the transition, our goals are to complete the task of fiscal delivery systems with clearing members and third-party service providers, complete internal operational tests, sign the clearing membership agreements between ICE Clear and the clearing firms and establish the guarantee fund. In just a few short months, we will be in the position to offer more services and efficiencies to the energy marketplace and beyond.

Now back over to you, Jeff.

Jeffrey C. Sprecher - Chief Executive Officer

Thanks for going through those details, Chuck. I'd now like to turn your attention to slide 14 and provide an update on another near-term initiative, which is the exclusivity on the U.S. Russell Index futures. We're approaching the transition of the Russell Index futures and options complex to our markets. Today, we're seeing volume growth in these products and earlier this week we set our fourth daily volume record during April. As we approach the exclusivity period, liquidity in the Russell Index futures contracts traded across existing markets has never been greater. Average daily volume for the Russell 2000 Emini contracts is trading… trading elsewhere is over 250,000 contracts. Volume today is over 30% higher than when we signed this deal last year. As such, we are confident in the value of this long-term agreement. We're focused on our entry into the equity derivatives markets and on the introduction of new market participants to ICE.

As we've been out with customers, we believe some participants are looking to transfer Russell business to ICE during or before the June role. This will provide continuous access to the Index during its annual reconstitution period at the end of June. We're working closely with customers to ensure that they're technically prepared for the transition and are not the last ones out of the contract during its final role elsewhere.

ICE participants are already seeing very tight market in the Russell 2000 mini contract, due in part to 20 market makers who were already active in our Russell markets. Importantly, given the proprietary trader participation in Russell markets, ICE offers a fast trading platform from which customers can benefit. Round-trip transaction times in our futures markets today is an unparalleled 3 milliseconds, a key selling point for that community. We’ll continue to update you on Russell issues and as we go forward we hope that volume growth will speak for itself.

Moving on, I'd like to address questions that we continue to get about the deleveraging in global markets. Just as we said for the last several quarters, we have not witnessed any material liquidity changes in our markets despite the credit market issues that began last summer. In fact, the participation and liquidity in our markets has only grown since then. We are very aware of the issues impacting certain participants in equities and the bilateral OTC markets for credit, but these have not impeded the growth or the liquidity in commodities. The fact that we have clearing in place for both futures and for the OTC markets has tremendously enhanced the health and the desirability of our marketplace. These comments aren't intended to down play the global credit issues. However, we believe that the secular trends in the commodities markets are actually overwhelming any recent credit market dislocations. If you step back and look at secular trends, you will see an increasing focus on commodities. For example, global growth continues to fuel the need for a diverse range of market participants to both buy and hedge energy related commodities.

With regard to energy, the U.S. has historically been the largest consumer of energy and crude oil products. But as countries such as China and India continue to grow, they will likely soon become the largest consumers of energy in the world. Today, China is building one coal-fired power plant every seven to ten days. Not only will coal demand continue to grow, but China already consumes more coal than the U.S. Compounding this demand for basic commodities is the fact that India is not far behind China in terms of development. Factors such as these led to us our agreement with Global Coal to launch a new suite of coal futures contracts that are designed specifically to serve the Asian markets.

There is also much talk about rising agricultural commodity prices. A significant driver of the demand for agricultural commodities is the emerging middle class in emerging economies. This new middle class is driving increased demand for products such sugar and cotton, which are traded on ICE. I believe demand for commodities will only increase during our lifetime as this new middle class develops.

I do want to cover M&A just briefly, and as you know, I can't be too forward-looking on this topic. I can tell you we're very focused on a number of opportunities in new and under-served markets. This year we acquired YellowJacket, which is a tremendous addition to our OTC options strategy, and a technology that we believe is next-generation in nature. We are leveraging the acquisition of Chatham that we completed last year, combining their experience with YellowJacket's technology. We intend to announce more detail on our plans for leveraging YellowJacket in the second half of this year.

During the quarter, we also began executing on our agreement with the Natural Gas Exchange of Canada also known as NGX. In February, we completed the transition of NGX customers to the ICE platform, and NGX is now providing contract delivery assurance and settlement for ICE's OTC physical natural gas transactions. Physical clearing was successfully launched at the first three U.S. delivery hubs during the quarter, and the results have exceeded both ours and NGX's expectations. This represents the first physical clearing initiative in the U.S. that has attracted solid liquidity. Commercial market participants are our primary OTC customers, and it's this type of innovation, which they have come to rely upon our markets for the procurement of natural gas and power across North America. We spent much of the last eight years at ICE building a solid diverse exchange model that extends across OTC and futures. As the most global derivatives exchange today and a leader in electronic markets, we will continue to enhance our three exchanges, our clearing capability, and our substantial OTC footprint to drive growth.

In concluding my prepared remarks, I'd like to thank our customers and my colleagues on the ICE team for a very strong quarter.

Now, operator, we're ready to start the question-and-answer session.

Question and Answer

Operator

Thank you. [Operator Instructions]. And we'll go first to Howard Chen with Credit Suisse.

Howard Chen - Credit Suisse

Good morning, everyone.

Scott A. Hill - Chief Financial Officer

Good morning.

Jeffrey C. Sprecher - Chief Executive Officer

Good morning.

Howard Chen - Credit Suisse

Congratulations on the strong quarter. Thanks for the update and all the detail on where the European clearinghouse launch stands. While you mentioned you expect Her Majesty's Treasury approval shortly, can you discuss, Jeff maybe or Chuck, what date does not having that formal regulatory approval in hand potentially push out the July launch date?

Jeffrey C. Sprecher - Chief Executive Officer

Sure. I mean, technically we need the approval on the day we launch. So that's really... there is nothing magic. I think one of the reasons, Howard, we wanted to go through a lot of detail is we may have given an impression that we needed to get an approval and then we needed to do a bunch of things post-approval. And the reality is the way this process has worked, I think largely because we're in the middle of a global credit crisis and there's been a lot of attention paid on new clearing infrastructure generally in Europe. We have been working side by side with the FSA and the OFT and building out the clearinghouse, the infrastructure, the contracts, the relationships, the Board, and the governance, as part of that recognition process, so that it... ultimately what it turned out to be was a process that was contemporaneous with the build-out.

Howard Chen - Credit Suisse

Great, thanks. And then my follow-up, Jeff, is also for you. I mean there has been a lot of discussion about changes in… or potential changes in the credit derivatives market structure. Well, I know your company's focus has been more energy and commodities over the past decade, but essentially ICE was created out of an OTC market whose market structure changed. So, I’d curious, how do you see this market evolving and how do you see ICE fitting into that conversation? Thanks.

Jeffrey C. Sprecher - Chief Executive Officer

Sure, thank you. Well, I guess first of all we began as a company saying to ourselves that clearing was going to become not just a post-trade back-office service, but a real business a few years ago. And I think you can see that the need for clearing exist in many of the OTC markets. In fairness to the dealers and people that are active in those markets, I think they want solutions that will help them with risk issues, but continue to allow the markets to grow and continue to allow the dealers to make money. So, they are naturally to me over-the-counter market. They have not yet risen to the level of being exchange-traded futures. So I think that as I think your question indicates there is more of opportunity in some of these asset classes to provide clearing back-office settlement service, even OTC confirmation matching and risk management services as opposed to listing these things as futures, which is why you haven't seen us to do that.

I would like to think that we have a good relationship with our customer base generally and the dealers specifically since we were effectively a dealer consortiums when we started. And we do continue to dialog about various parts and pieces that we have globally that can serve that market and some of the other emerging markets where we have parts and pieces. Beyond that I don't want to get too specific other than to say that I think it validates… what's going on validates some of the moves we started to take years ago in the move into the clearing business.

Howard Chen - Credit Suisse

Great, thanks. I'll hop back in the queue.

Operator

And we'll go next to Daniel Harris with Goldman Sachs.

Daniel Harris - Goldman Sachs

Hi, good morning. Want to... you guys got three or so facilities online now with relationship with the NGX fiscal clearing and of course it seems like the Henry Hub is obviously the biggest. Can you give me sort of an indication of how that's progressing, the Henry Hub versus the first you put online? And are there any other locations that you anticipate coming online over the next half year to the year?

Charles A. Vice - Chief Operating Officer

Chuck, I'll try to answer for that. On the second part of that, we will be bringing other hubs online. I mean given that it's fiscal clearing, we work closely with NGX on this who has to put the pipeline nomination processes in place range for backstop service from gas supply providers at that hub. And they are doing that at a number is hubs as we speak. And I think in the second quarter I fully expect us to roll out some additional hubs. I think we've seen the early trading there. The take-up, not unlike the take-up with clearing of swaps where initially people begin using it in situations where they don't have credit, where they don't want to extend further credit to particular counter-parties. Remember, we’re able to offer bilateral and clear trading in a single price stream and we do that in these physical gas markets as well. So, the system allows you best of both worlds really to use your bilateral credit where you want to with those counter-parties and use clearing without the counter-parties where you want to.

What we've typically seen over time in other cleared markets and we expect here as well, although it may take a little longer, is for that presence of clearing to allow some non-traditional players to enter those markets, which brings additional liquidity and lower transaction costs. And over time, the opportunities to trade with those parties enables more clearing and eventually the multilateral capital efficiency effects of doing more cleared transactions in a particular market tend to outweigh any resistance someone may have to the small additional cost areas of the cleared transactions.

Daniel Harris - Goldman Sachs

So… but just on... how many major distribution hubs are there for nat. gas in the U.S.?

Charles A. Vice - Chief Operating Officer

Roughly a 100.

Daniel Harris - Goldman Sachs

Okay. And then just I want to clarify, as my follow-up, sort of what happened in July or upon the launch ICE Clear Europe. Is it accurate to say that clients that wanted to trade in ICE will have to hold their open interest and their clearing arrangement with you guys or are they going to be able to do sort of in the short-term have multiple clearing arrangements? Thanks a lot.

Jeffrey C. Sprecher - Chief Executive Officer

Sure. Well, the short answer is, we don't know how to nor have we ever seen in the world some kind of interoperability between multiple clearinghouses on complex derivatives. And certainly, I can tell you that as a part of our application approval process that risk has never been studied or looked at. So it's not something that we're planning for. I think customers, they have a choice today, there are multiple venues now to trade energy on regulated exchanges where there are clearing, and I think that the people that we deal with are sophisticated traders that tend to have a relationship with all those venues. So they're used to holding positions in various clearinghouses in various jurisdictions and I don't see anything that would change that. In fact, you'd be amazed at how sophisticated… as we've been evolving as an exchange, how sophisticated the FCM and credit intermediary market has been to really take capital out of that system for traders and provide various services in netting down positions at various clearinghouses. So I think it's going to organically happen and continue to operate the way it is operating.

Daniel Harris - Goldman Sachs

Thank you.

Operator

And we'll go next to Jonathan Casteleyn with Wachovia Securities.

Jonathan Casteleyn - Wachovia Capital Markets

Hi, good morning.

Jeffrey C. Sprecher - Chief Executive Officer

Hi, Jonathan.

Jonathan Casteleyn - Wachovia Capital Markets

You mentioned exporting your OTC markets to other products, just wondering what those new product suites could be. And if you could just comment, I know you saw some uptick recently in oil liquids over the past couple of quarters. Just wondering if that… if you can give us a new percentage of oil liquids in the OTC market?

Jeffrey C. Sprecher - Chief Executive Officer

Sure. On your first question, I don't want to be too specific other than, we're trying to be innovative and we're trying to look for places where others aren't looking, where there may be opportunities in the OTC space. And we do really have good relationships with a lot of senior people and I’ve spent a lot of my time over the last nine months or so during the credit crisis talking to very senior people including a lot of CEOs on Wall Street about their needs and how to help enhance their businesses, and they've given us some... they’ve dropped some breadcrumbs that we’re following. And so I do think that you should assume that we're active out in the space looking for new opportunities, that we do well I think in finding niches and using our services. Particularly, I’ve found that Wall Street is increasingly becoming impressed with our technology capabilities here and our abilities to deliver on the promises that we've made on the time frames that we have made them and do them low cost. So that I think is serving us well in those conversations. On the natural gas, let me turn it over to Scott.

Scott A. Hill - Chief Financial Officer

Yes. Jonathan, I will give you some rough numbers. If I look at NGLs and then also Platts and NGX, across those three, they contributed give or take a little bit, two or three points of our growth in OTC in the quarter.

Jonathan Casteleyn - Wachovia Capital Markets

Got it. Okay, great. That's rather interesting. Just on European pricing, I just want to make sure I'm not missing something there. I know it's very hard to predict. You've never given guidance on it. Can you just comment on the direction of pricing there? I just want to make sure that from a long-term perspective if possible if I have an understanding of where you think that might go?

Jeffrey C. Sprecher - Chief Executive Officer

Sure. Well, I think first of all we obviously have to be competitive and I think you are aware of areas where we compete. And I think that… look, we are introducing the second major clearinghouse in London. So one would think there will be competitions for new initiatives, which is really a part of what I think the Office of Fair Trade was looking at in reviewing our application. That will keep prices reasonable. I think that's what customers want, that's what customers are telling us they want. It's not that the absolute cost of trading is high. The reality is the value of that most of the global exchanges have brought over the last five years to trading in moving the markets more electronic have been tremendous savings for customers that far outstripped these little transaction costs that we charge. But the market does want to know that there is competition and that we're finding value for them. So, the symbolism of that and active robust competition is out there.

I am always amazed when we look at our market share numbers, particularly in global crude oil where we just continue to hover around 50%, and there is no reason that it shouldn't be 30 or there is no reason that it shouldn't be 70 other than I really do believe that major market participants like to keep liquidity in multiple places and one of the reasons that they do that is for competition. So, net-net, we are going to be competitive. I don't think as I've said that that necessarily is a race to the bottom because we have found maybe more than most that customers are willing to really compensate us if we are willing to provide back to them new technologies and new innovative things that lower their overall cost of trading and we've been quite good at that and some of the things we've done by reinvesting in our businesses, buying things like YellowJacket, coming up with physical clearing, rolling out our ICE risk systems, building eConfirm confirmation systems. I mean our customers are sophisticated to know that those cost money and are willing to allow us to pay for those. And that's… I think if you look at how we've operated, we've continued to tried to reinvest in those kinds of things on behind of... behalf of our customers.

Jonathan Casteleyn - Wachovia Capital Markets

Great. Understood. Thanks a lot.

Operator

We'll go next to Ken Worthington with J.P. Morgan.

Kenneth Worthington - J.P. Morgan

Hi, good morning. So two follow-ups on other people's questions. First on Howard's question on FSA approval. I appreciate your comments from a technical perspective that you can get the approval kind of the day before, but maybe you can help me on a practical matter. I was under the impression that you did want the FSA approval kind of... obviously, before the day of... an indication that is that we were hearing that some of the members or a lot of the members weren’t signing their commitment letters because they were waiting for FSA approval and that you wanted the member commitment letters to be signed because I thought there was some final areas of testing that couldn't be or wouldn't be completed until those commitment letters were signed. So, am I off here, am I being misguided or is there some merit to that argument?

Jeffrey C. Sprecher - Chief Executive Officer

I would never say you're being misguided.

Kenneth Worthington - J.P. Morgan

Okay.

Jeffrey C. Sprecher - Chief Executive Officer

No, I think what you're seeing, Ken, is... I stand by the statement that we only needed it on the day we go live. But the... as a practical matter, when we entered this, there are actual statutory deadlines or… over in the U.K. for various jurisdictional bodies to review in complete things. And we were able to add up that… those statutory deadlines, and when we started this process little more than a year ago thought that we would have the approvals in the first quarter. In the intervening time, we went into a global credit crisis and the Department of Justice in the U.S. made public comments and we've seen further merger activity of some of the large players here. And so the space is being dynamic as we've been going through this. And as those new facts have come to bear, regulators have been wanting to look at our clearing initiative in that context and so the process evolved. And we decided that rather than try to be hard about holding people to deadlines, let’s… we have a very meritorious effort here, let's just continue to demonstrate its value and work through the issues and make sure that people's concerns are mitigated.

And so what we've done is a lot of the work that we have really thought was going to be post approval, we did as part of the approval and the approval process really expanded to look at things like how is the... who exactly is going to be on the Board of Directors and what are their resumes or CVs and do they have the kind of knowledge that can help manage through potential future credit crises, exactly how are some of these risk systems going to work and have they been tested and can we demonstrate various scenarios through the regulators. So, we built the system out alongside this approval process. I think we got finally to the point where we decided, let's go ahead and design all the documentation for the various clearing firms and we did that in these working groups that were heavily attended, I think pretty much everybody at most every meeting, and we worked through a lot of the details as issues were rising up. So there is no lack of familiarity with what we're trying to do or what's needed at this point, which we thought would be the case when we started this initiative really about a-year-and-a-half ago. So, it been an evolutionary process to specifically answer your question.

We feel comfortable with where we are. We are confident that things have gone well. And frankly, the process has driven a lot of discipline to resolve a lot of issues, and I think we emerge as a very, very strong clearinghouse from this process.

Kenneth Worthington - J.P. Morgan

Okay, thank you. And then the second question, OTC volumes have experienced fantastic growth for you. So kind of two parts, if you can explain maybe what is kind of industry and what is not, I think that was a follow-up on someone else's question, but I wanted to make sure I got it as my way? And then secondly, just your insight here, Jeff, into kind of OTC volumes versus kind of listed derivatives, insights should be great. Thanks you.

Jeffrey C. Sprecher - Chief Executive Officer

Sure. Let me take the second one first, and then I'll ask Scott to give you sort of the market share numbers and then customer mix. What's happening… when we look at our numbers, and it was really apparent this last quarter, is a massive broadening of volumes in our OTC markets. We... when we really started ICE's OTC products and started clearing them, it really was limited to a NYMEX natural gas look-alike contract, and the bulk of our volume was concentrated there. What you've seen now really I think as a result of these... the various deals that we've done is a broadening of the markets. So the growth is actually happening outside of that particular product suite in other things that we do. And it's a second order effect, what Scott mentioned that in the absolute number some of these bolt-on acquisitions that we've done have contributed solid growth, but haven't been the overwhelming growth that you've seen. The second order affect that they've had in continuing to bring in people and keep them sticky and then the efforts that we've had to widen the market participation as we've done more clearing have helped.

You have to remember our... you may not have seen this as we are a public company, but we had some very serious limitations in our ability to roll out cleared products. That caused us to be late to some of these markets and we had a competitor that was able to roll things out much faster. And so we… being a first mover in some of this important and we didn't have that option. So what did we do, we came in late because of technology issues, we then decided to go out and these were third-party technology issues with our clearing systems and we then went out bought… did it with NGX, NGI, Platts, Natural Gas Exchange, Chatham, YellowJacket, ChemConnect, these… all these things were small efforts to us to incrementally try to claw back business that we thought we should have had to begin with. Now that we've done all those, there is a tremendous momentum building in broadening the OTC markets, which for us as managers is really rewarding because it's seeing some of these moves that we did play out and it's also building what I think will be a sustainable trend as we continue to do more clearing and broader market participation.

Scott A. Hill - Chief Financial Officer

Just to give you a few numbers around the dynamics that Jeff talked about, I mean it really has been a phenomenal growth story. If you look at the overall OTC business, in Q1 of last year it has doubled versus the prior year and in this year we grew nearly 70%. And if you look underneath the cover, the growth is really broad-based. We continue to see strong growth in gas, which was up well over 50% year-to-year, strong growth in power, which was up nearly 80% on a year-over-year basis. And as Jeff mentioned… although individually none of them add a tremendous amount, if you look at Platts and NGX and Chatham and the NGL, we're looking at in the neighborhood of 6 to 8 points of incremental growth we're getting from those acquisitions. So it's the core products that have built over time plus these acquisitions that are all contributing to the growth that as you saw in April continued with nearly a 100% growth on a year-over-year basis in April.

Kenneth Worthington - J.P. Morgan

Okay. Thank you very much.

Operator

Our next question comes from Rich Repetto with Sandler O'Neill.

Richard Repetto - Sandler O'Neill & Partners

Yes. Good morning, guys.

Scott A. Hill - Chief Financial Officer

Good morning.

Jeffrey C. Sprecher - Chief Executive Officer

Good morning Rich.

Richard Repetto - Sandler O'Neill & Partners

Jeff, not… we are certainly beating this clearing thing to depth, but just one clarification is, have the actual commitments or agreement letters been sent? And I know you're saying that the members are aware of it because we are in the working group, but have they actually been given and sent to them?

Jeffrey C. Sprecher - Chief Executive Officer

They are all out in drab [ph] form and there have been numerous drabs that have been reiterated as these working groups have worked through. They are not available for signature because one of those things that is in there is an actual calculation of the contribution to the risk pool and let me say, client-specific issues per agreement, and out of fairness to the regulatory process we want to make sure that all of that has been bought off on, which we believe it has and… before we actually have people execute. But in terms of... if you're thinking about timing, I mean these agreements all exist in various places in many general counsels in these offices where providing us with lots of feedback as you can imagine. So we expect that they can be executed relatively quickly.

Richard Repetto - Sandler O'Neill & Partners

Okay. That's exactly what I was trying to understand because I know what you said before that you didn't really want to front-run the regulators.

Jeffrey C. Sprecher - Chief Executive Officer

Right.

Richard Repetto - Sandler O'Neill & Partners

Okay. And then, my follow-up question would be to... with other products and looking at the Russell and the licensing fee, I assume the 0.7 expense in 3Q just has do with timing, because it is going to 6.5 in the next quarter. So, I'm trying to understand with the buildup in volume prior, it is so like getting your cake and eating it too. You’re getting the volume beforehand, before you even got the exclusive license. And that's part of in the category for other products. And then I saw option volume in Ag's double, did you split the contract yesterday or what?

Jeffrey C. Sprecher - Chief Executive Officer

Just May 1st.

Charles A. Vice - Chief Operating Officer

Let me answer the Russell question quickly. So as you look at it, the most significant value out of that relationship is obviously in the exclusivity period. And so as we got better visibility into when that exclusivity period would begin in September, the adjustment in the third quarter expense is very simply matching up the expense when the exclusivity period starts in September versus [inaudible] that it would start earlier in the quarter. So, that's just really the accounting to match the amortization with the exclusivity period. Clearly, we are not going to wait until the exclusivity period begins. As Jeff mentioned, we set a record for Russell trading yesterday and that was a record... we set a couple of records as we went through the month of April and are up the volume. Our prices that you see on our Russell products are equally as good as what you see on the other exchange. We brought onboard some sales leaders who know this space and know these customers. We are working on market-making programs and joint marketing initiatives to get the trading move to the platform in June. So, the guidance is to give an update on where we think the accounting will handle, but more importantly we've got a number of initiatives in place to get more of the volume in June and then to build on that volume and get a good solid running start as the exclusivity begins in the middle of September.

Jeffrey C. Sprecher - Chief Executive Officer

And on options, Rich, if you... I guess I would make two points. One is, tremendous relative volatility in the first quarter in the ag. complex. I mean, anyone reading the papers will see that to the point that it potentially started riots in some countries over food shortages, so lot of volatility in the first quarter and a lot of the rates that people play that volatility in ags is through the options. The second thing, and this is something we inherited, I don't really fully understand the reasons for it, but at least in North America the ag. products have limits and stops on them when they have certain price movements. And so exchanges like ours have to hold pricing… hold the market price at certain levels as breaks when there is trading going on in the flat price futures. And a lot of the way the customers deal with actual price discovery when exchanges are limit up or limit down is by trading in futures… in options on the futures, which have separate limits in our case. So you do see some portability between flat-priced futures and options trading during these sort of extreme periods, and I think we were limit on many of our products in the first quarter.

Richard Repetto - Sandler O'Neill & Partners

Okay. That's very interesting. Thanks, guys.

Jeffrey C. Sprecher - Chief Executive Officer

Thank you.

Charles A. Vice - Chief Operating Officer

Thanks, Rich.

Operator

Our next question is from Rob Rutschow with Deutsche Bank.

Robert Rutschow - Deutsche Bank Securities

Hi, Good morning.

Jeffrey C. Sprecher - Chief Executive Officer

Good morning.

Robert Rutschow - Deutsche Bank Securities

I guess I have a sort of… set of questions related to YellowJacket and the OTC, the first part being was there any impact in the first quarter from that acquisition? And the second part may be more generally, I am wondering if they have tried to establish a positioning outside of the OTC… outside of the Energy markets and whether they've been successful? And then more broadly, what your feeling is in terms of the OTC markets, do you need the futures contracts to be successful in creating OTC products to trade on your exchange?

Jeffrey C. Sprecher - Chief Executive Officer

Okay. Well, first, in terms of revenue impact, it was immaterial I would say to us in the first quarter in terms of actual financial impact. We've been investing a lot in YellowJacket. We've a technology team dedicated to integrating YellowJacket more intimately with our platform. And ultimately, because we are one of the few exchanges that have our front-end and because it's widely used in the industry we want to be able to roll a YellowJacket up incredibly broadly to customers that would like to use it. So we have the capability and are building that up technologically. So there is an expense impact, again probably not material but nonetheless to give you a sense on what we're doing there.

YellowJacket has tremendous applicability outside of energy and that's partly why we wanted to buy it, as an offensive move to help us move into other asset classes, as a defense of move so that we didn't wake up one morning and find that somebody else had moved into asset classes that we have wanted to. I think YellowJacket right now… its broadest distribution and its broadest use is actually in weather. Weather is highly related to energy because people that run power plants for example really have their dispatch tied to whether we're using heating and air conditioning. So we have a lot of common customers that... and I think that's why YellowJacket starting to focus on energy itself as a way of continuing to diversify.

The... I think one, it has some knock-on effects that we'll talk more about as we roll them out, but it's got very good security systems, very good recording systems that increasingly meet your banks and Wall Street firms are demanding from systems that they use. So for an OTC… sort of a free-form OTC market, it brings a number of things to a manager. I mean one of the issues that people face is that in the world today, a lot of people have instant messenger IDs and those really belong to the person and they use them when they go home, and more importantly when they quit and go to a competitor they continue to use these Instant messenger IDs. And so, if you’re security engineer at one of the major banks, you’ve got to try to lock that down a bit. And so YellowJacket has a number of technologies that we're talking to banks about rolling out broadly. We had I think… one customer came to us and ordered 400 YellowJacket screens recently and it was for… security issues that drove that. So we're quite bullish on it. We think it's a next-generation technology and as I think I said in prepared remarks, we’ll talk more about it as we go forward.

Scott A. Hill - Chief Financial Officer

And Rob, just one data point that would fit in our guidance, that’s what Jeff said. We did add 18 employees with the YellowJacket transaction. So, that will give you a rough idea of the expense.

Robert Rutschow - Deutsche Bank Securities

Okay, thanks. My follow-up is, you talked about the Asian markets and the growth there. I'm just wondering if you can give us little bit more color on how you tap into those markets and capitalize on the growth there and how you view the competitive landscape in terms of some of the smaller local exchanges?

Jeffrey C. Sprecher - Chief Executive Officer

Sure. Well, last week we held a cocktail party in Tokyo for 150 of our clients. So one way we tap into it is by entertaining people, but we have a couple of very interesting things. First of all, we benefit from the fact that prior to ICE’s existence on the oil industry really located its trading hub in Singapore, which gave it access to various venues in Asia. And so, we've been able to get access in the... essentially business that's related to China, business that's related to Japan and other Far Eastern countries and economies through Singapore. And we have an office in Singapore and many colleagues there. And so we have a jumping off point if you will to move into these other areas.

The two things that we've done as managers to try to drive more volume there is, number one, we did this deal with Platts where… and we rolled it out first in Asia where there was tremendous demand for Platts’ physical settlement… the price discovery for Asian petroleum products and that has been… that was the first place we rolled out our Platts relationship. It had a huge uptick. It has been very, very well received. As a result of that, we are now moving into Europe with Platts and ultimately globally.

And then the second thing we did is this Global Coal relationship where we're going to launch Asian coal markers. Global Coal is a consortium of coal companies and again it’s a... it's more than just a license. We're going to intimately work together, similar to what we do with the NGX and with Platts, to jointly market and get penetration of our screen. So, we've done some very kind of novel things. So the other... or near eastern investment we made was in the exchange called NCDEX, which is in India. We did that because India is a close market to western exchanges. So we have a relationship there. We've spent a lot of time with them helping them to develop their markets, levering off of some of the experience that we have and things that we have done. And since we’ve bought the New York Board of Trade, which has physical coffee, cocoa, cotton, sugar, these... the expertise that our people and colleagues have in the warehousing delivery of that surround us, we've been trying to help import into India. So I think it's why ultimately ICE has customers now in 55 countries. We've benefited from a few of the things that we have done here as managers.

Robert Rutschow - Deutsche Bank Securities

Okay. Thank you.

Operator

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

Michael Vinciquerra - BMO Capital Markets

Thank you. We've kind of danced around a little bit I guess, but can you comment just specifically on NYMEX's efforts with LCH over in Europe?

Jeffrey C. Sprecher - Chief Executive Officer

Sure. We don't know what about them, because a lot of the... some of the issues... the major issues, at least we haven't seen laid out publicly. Certainly we take any competitive offering seriously, but we are very, very focused on our plans and I ultimately believe that ICE and NYMEX will coexist in the world and that our customers want us to and take various things from both of us, but it's why market share is really so evenly split. So, I think this is... in our world of managing ICE, this is the fifth or sixth attempt I think by NYMEX to try to build Brent oil volume. So it goes from launching electronically, building exchange in Dublin, building a futures exchange in the U.K. only to shut it down, now only to go back in and do another one. So, we are sort of used to the competitive noise that we deal with in the space. But we're very, very focused on what we're doing. We've got just a lot of people working on this initiative, both inside ICE and inside all these clearing firms and customers who would like us to roll out more cleared products that are more exotic and there are things that we really feel we need to control the technology and investment in the technology to do. And it’s that inertia that I think ultimately will lead us to be very successful over there.

Michael Vinciquerra - BMO Capital Markets

So, back to your point earlier then I guess, it doesn't make sense to you that they would be open interest sitting in multiple clearing houses for similar products?

Jeffrey C. Sprecher - Chief Executive Officer

Well, there is right now. I mean, there is open interest in NYMEX, in ICE's third-party clearinghouse in [inaudible] and in Dubai for all of these various energy products and there is reason that the various exchanges have been successful in various markets. I don't see anything that's changed that. If you look at who the users are of all those markets, it's all the same firms. They... it's major oil companies, major energy producers, and we really have not broadened the energy market participation to the point that we have a lot of retail customers or in the case of ICE, Brent is not a speculative oil contract, so it's not... so it tends to be WTI. So we don't really have the exchange-traded funds and some of the commodity advisors that are really focused on that product. And so I think the natural users of Brent like the way we've been handling the market. They certainly have followed us through a tremendous amount of change and we've been quite aggressive in driving change in those markets. And I think we've earned their respect and we certainly collaborate with them on everything that we're doing. So the biggest issue for them is... I want to... they want to make sure that clearinghouse is secure, they want to make sure that it's got technology, they want to see that it's going to bring them benefit. And that's what we've been out marketing and demonstrating to them over the last about year-and-a-half or so.

Michael Vinciquerra - BMO Capital Markets

Okay. Thank you for that. And then just one for Scott. Scott, the other revenue category was up about 50% sequentially. Can you just remind me what runs through that and what was the driver in the quarter?

Scott A. Hill - Chief Financial Officer

Yes. A lot of things run through it, none of them individually or materially. If things like fees for the services we provide around cotton deliveries, if things like direct services fees for connections in the data centers, yes, I guess it’s probably again not a huge number, but one that we look at a lot as important. Our ECX and CCXs also run through there and those were up pretty significantly. I'm sure you've seen in the press that ECX performance recently has been really successful and that does have a knock-on effect, which is recorded in our other revenues. So that’s a lot of things that helped drive that.

Michael Vinciquerra - BMO Capital Markets

Okay. Thank you, guys.

Operator

And there are no further questions in the queue. And that does conclude our conference for today. Thank you for your participation. You may now disconnect.

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