ICE will launch energy products for the former Russia

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ICE, the exchange operator and provider of data, technology and market infrastructure, will launch a suite of energy products that do not involve any commodities from Russia after the invasion of Ukraine by this country.

Jeffrey Sprecher, chairman and chief executive of ICE, said on the earnings call that the group had its best quarter ever in the first three months of this year.

Revenues from global natural gas and environmental products, which account for about 40% of energy revenues, rose 30% in the first quarter.

Sprecher went on to say that ICE had a great quarter amid all the uncertainty that existed in the energy markets at quarter and hit record open interest in the energy sector. Price volatility led to higher margins, so clients turned to using options as a cheaper way to manage risk.

He pointed out that a number of ICE products, particularly in Europe but also Brent oil globally, enable the delivery of Russian energy in indices or physically delivered contracts. Many companies have decided not to participate in these products for moral and ethical reasons. ICE is therefore launching a suite of ex-Russian energy products.

“There’s been a lot of demand and we have regulatory approval, so you’re going to see them roll out,” Sprecher added. “We have very high expectations given that we have worked with industry to develop these products.”

ICE reported consolidated net income of $657 million on $1.9 billion in consolidated revenue for the first quarter, a 6% increase from a year ago.

Warren Gardiner, ICE’s chief financial officer, said on the earnings call, “In the first quarter, we again grew our revenue, operating profit and cash flow. This performance was driven by cumulative growth in recurring revenue across all segments, combined with growth in our various transaction-based businesses. »

Total transaction revenue increased 4%, while total recurring revenue, which accounted for nearly half of total activity, increased 9%, following 10% growth in the first quarter of 2021.

Net trading revenue in the first quarter rose 12% year-over-year to $1.1 billion, which ICE said was driven by a 36% increase in trading futures. interest rates and a 16% increase in energy revenues. Fixed income and data services reported record first-quarter revenue of $509 million, up 9% from a year ago.

Source: ICE

Acquisition of the Dark Knight

ICE also announced an agreement to acquire Black Knight for $13.1 billion which it says builds on ICE’s position as a provider of end-to-end electronic workflow solutions for the US industry. residential mortgage loans. Black Knight provides software, data and analytics for the real estate and housing finance markets.

In August 2020, ICE announced the acquisition of Ellie Mae as part of ICE’s strategy to accelerate analog-to-digital conversion in the mortgage industry.

Sprecher said, “By adding Black Knight, we have the potential to further improve the capital markets ecosystem that surrounds US residential mortgage financing, reducing the risks of these markets for participants by shortening the holding period interest rate risk, making data more transparent to risk holders and creating more efficient hedging markets which should ultimately reduce costs for the market as a whole.

Jeff Sprecher, Intercontinental Exchange

Jeff Sprecher, ICE

He added that the combination provides an opportunity to create market efficiencies that is the most inefficient and the most analog. “We think this is an opportunity to take two rare sets of assets that are 100% complementary and bring them together,” Sprecher said.

There are also opportunities to use Black Knight’s proprietary data assets in ICE’s growing mortgage technology business and in capital markets to bring transparency to mortgage-backed securities markets.

ICE also plans to launch its first mortgage futures contracts on June 13, 2022, subject to regulatory approval. Both contracts are based on indices from a suite of 80 US residential mortgage indices launched by ICE in October 2021.

Joe Tyrrell, President of ICE Mortgage Technology, said in the launch announcement, “This is the next step in how ICE leverages the rich data that ICE Mortgage Technology receives from having the most large electronic network of mortgage players in the sector. ICE combines this data with its technology and expertise in futures markets to create products to help clients in the mortgage and mortgage-backed securities market assess, analyze and now manage the risks associated with their exposure to mortgages.

Combining Black Knight’s data with ICE’s expertise in fixed income and capital markets will also provide more transparency to fixed income markets and more transaction-based data for accurate pricing and modeling of prepayments.

Sprecher said, “These capabilities combined with our deep trading and clearing expertise open up a longer-term opportunity to improve transparency for secondary market participants in the form of a loan exchange.”

Goldman Sachs and Wells Fargo Securities were ICE’s lead financial advisers, and Shearman & Sterling and Morgan Lewis & Bockius were legal advisers. JP Morgan is Black Knight’s exclusive financial advisor and Wachtell, Lipton, Rosen & Katz is legal advisor.

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