ICE, the exchange operator and data, technology and market infrastructure provider, is going to launch a suite of energy products which do not involve any commodities from Russia following the country’s invasion of Ukraine.
Jeffrey Sprecher, chairman and chief executive of ICE, said on the results call that the group had its best quarter in history the first three months of this year.
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Revenues for global natural gas and environmental products, which represent approximately 40% of energy revenue, increased by 30% in the first quarter.
Sprecher continued that ICE had a great quarter amongst all the uncertainty that existed in the energy markets in the quarter and reached a record open interest in the energy sector. Price volatility resulted in increased margins so clients shifted to using options as a cheaper way of managing risk.
He highlighted that a number of ICE products, particularly in Europe but also Brent oil globally, allow the delivery of Russian energy into indices or physically delivered contracts. Many companies have decided not to participate in those products for moral and ethical issues so ICE is launching a suite of ex-Russia energy products.
“There has been a lot of demand and we have regulatory approval, so you are going to see them rolling out,” Sprecher added. “We have very high expectations given that we have worked with the industry to develop these products.”
ICE reported consolidated net income of $657m on $1.9bn of consolidated revenues for the first quarter, an increase of 6% versus last year.
Warren Gardiner, chief financial officer of ICE , said on the results call: "In the first quarter, we once again grew revenues, operating income and cash flows. This performance was driven by compounding recurring revenue growth across segments combined with growth in our diverse transaction-based businesses.”
Total transaction revenues grew 4% while total recurring revenues which accounted for nearly half of total business increased by 9%, following 10% growth in the first quarter of 2021.
First quarter exchange net revenues rose 12% year over year to $1.1bn, which ICE said was driven by a 36% increase in interest rate futures and a 16% increase in energy revenues. Fixed income and data services had record first quarter revenues of $509m, a 9% increase versus a year ago.
Black Knight acquisition
ICE has also announced an agreement to acquire Black Knight for $13.1bn which it said builds on ICE’s position as a provider of end-to-end electronic workflow solutions for the U.S. residential mortgage industry. 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 the analog-to-digital conversion across the mortgage industry.
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Sprecher said: “By adding Black Knight we have the potential to further improve the capital markets ecosystem that surrounds the funding of US home mortgages, derisking these markets for participants by shortening the duration that interest rate risks are held, making data more transparent to the risk holders and creating more efficient hedging markets which should ultimately lower costs for the entire market.”
He added that the combination provides an opportunity to create efficiencies in the marketplace that is the most inefficient and most analog. “We think it is an opportunity to take two rare sets of assets that are 100% complementary and bring them together," said Sprecher.
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 is also planning to launch its first mortgage futures contracts on 13 June 2022, subject to regulatory approval. The two contracts are based on indices from a suite of 80 U.S. 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 is leveraging the rich data ICE Mortgage Technology receives from having the largest electronic network of mortgage stakeholders in the industry. ICE is combining this data with its technology and expertise within futures markets to create products to help customers in the mortgage lending and mortgage-backed security market to price, analyze and now manage risk associated with their mortgage exposure.”
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The combination of 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 prepayment modelling.
Sprecher said: “These capabilities combined with our deep expertise in trading and clearing unlock a longer term opportunity to improve transparency for the secondary market participants in the form of a loan exchange.”
Goldman Sachs and Wells Fargo Securities were lead financial advisors to ICE, and Shearman & Sterling and Morgan Lewis & Bockius were legal advisors. J.P. Morgan is exclusive financial advisor to Black Knight and Wachtell, Lipton, Rosen & Katz is legal advisor.
