Seeing the headlines that the InterContinental Exchange is in talks to buy the New York Stock Exchange for an estimated $8 billion took my breath away.
In October 2000, in one of my first days working for Platts, I did a brief story on how a small and quite obscure online trading platform — one of many that had emerged over the course of the late 1990’s dot.com boom — had announced the availability of its first power contract. Only a few months prior the firm had launched its first natural gas contract.
In reporting the story, I explained that a fellow named Jeff Sprecher had bought the rights to the dormant regional exchange called the Continental Power Exchange, that was based in Atlanta, and, like other such dot.com efforts at the time — Houston Street and Altra Energy come to mind — ICE was looking to break into the emerging trade of energy commodities, specifically natural gas and power, which had been deregulated in the 1990s.
Of course, at that time, the big player in the gas and power trading markets in the US was Enron, which, through its lobbying efforts in the mid-1990s with the Financial Accounting Standards Board had gotten the accounting methods behind power and gas trading liberalized. Also, noting the opportunities presented by the internet, Enron decided in November 1999 to put its gas and power trading markets, which had begun to soar, on its one-to-many trading platform, Enron Online.
Up and down Smith Street in Houston, company after company set up big trading desks. Many were trading with Enron, and on Enron Online. Enron’s churn was predicated on the fact that the company would take the opposite side of all trades that came to it on its platform. It would then account for its huge trading volumes by marking the trades to a modeled price.
By definition Enron Online was not an exchange, but rather a way for Enron to do massive amount of trades.
Meanwhile, the nascent platforms, which were also technically not exchanges because they weren’t regulated, struggled to survive.
It helped that ICE had a consortium of backers which included American Electric Power, Goldman Sachs, Morgan Stanley, BP, Shell and Duke. One company, Dynegy, had built its own Enron Online look-alike platform. As well, brokerage firm Cantor Fitzgerald had created TradeSpark.
Then in mid-October 2001 came the beginning of Enron’s unraveling, which culminated in its December 2, 2001, bankruptcy filing, and ultimate liquidation. Just three days before filing for bankruptcy, Enron Online went black, never to return.
What this reporter recalls is writing a story roughly 6 weeks later saying that ICE had reported something close to a 180% increase in trading on its online trading platform in December 2001, the first month after Enron Online’s demise.
Energy traders flocked to ICE precisely because of its many-to-many structure and because of the liquidity that its deep-pocketed backers provided.
ICE’s largely unnoticed earlier acquisition, in June 2001, of the International Petroleum Exchange in London had already expanded ICE’s presence, and helped push it down the path of futures trading. By the spring of 2005 the company’s portfolio of energy futures had become fully electronic.
In November 2005, with a book value of more than $1 billion, ICE went public. In 2007 the company really took off, with the purchase of the New York Board of Trade, which it renamed ICE Futures.
In February 2011, ICE joined with NASDAQ in making an $11.3 counter-bid for NYSE Euronext, after Deutsche Borse had announced its plan to merge with the venerable, 220-year old exchange.
After the US Justice Department said it worried about bringing so many stock listings together under a merged NASDAQ and NYSE entity, ICE and NASDAQ dropped their bid.
Deutsche Borse and NYSE Euronext then dropped their merger agreement in February 2012 after European antitrust regulators said they worried about how much derivatives trading would be handled by the merged entity.
ICE’s rise has been meteoric, a tale for the computer age, to be sure. Whether or not ICE will finally land the New York Stock Exchange now remains to be seen. Imagining the tiny entity I first encountered 12 years ago about to take hold of the most famous exchange in the world? Wow. Who would have guessed?