In an attempt to enhance its technology space, IntercontinentalExchange Inc. (ICE) announced the acquisition of WhenTech – a prominent technology, software and information supplier for the options market. Financial and other details of the deal remain undisclosed.
The acquisition will enable ICE to offer superior options trading by assimilating its option services with WhenTech’s pricing and risk management proficiencies, which leads in the US market. Consequently, traders at ICE will now be able to ascertain option trading occasions more quickly and efficiently enjoy smooth execution of such trades.
This is not the first time that ICE has been associated with WhenTech. The company’s subsidiary YellowJacket’s trading relationship with WhenTech dates back to May 2012, whereby ICE Chat platform was established to swiftly detect options opportunities in the market and relay those messages instantly. Such processes have resulted in effective and attainment of timely request, execution and order fulfilment for cross-trading transactions.
Hence, based on a successful and productive past performance, we believe the acquisition should further help ICE achieve its goal of providing the best technology experience to customers. Moreover, given the fact that sluggish transaction volumes have been deteriorating the growth prospects across the exchange industry; building and capitalizing on the market data, technology and other revenues appears to be a viable channelization of resources for ICE.
Moreover, the outlay of growth plan earlier this year -- by dominant players such as NYSE Euronext Inc. (NYX) and CME Group Inc. (CME) through acquisitions, setting up of clearinghouses along with new product and service initiations in the derivatives market -- have already pointed out the swiftly changing dynamics of the exchange industry. Such aggressive industry efforts are not only keeping the company’s management on its toes but are also directly threatening its operating and competitive leverage.
Early Transition of Energy Swaps
In order to remain competent in the market, ICE plans to convert its over-the-counter (:OTC) cleared energy swaps and options to futures by mid-October this year, ahead of the prior schedule of January 2013. The before-schedule transition is based on the heightened interest of the customers.
Accordingly, ICE intends to list its cleared North American natural gas, electric power and environmental-based contracts on the ICE Futures U.S. energy division. Meanwhile, the futures list on ICE Futures Europe will now include cleared oil products, freight, iron ore and natural gas liquid swaps.
However, all contracts will continue to clear at ICE Clear Europe. The transition is expected to bring in more transparency to the trades and is well-compliant with the regulatory norms.
ICE currently carries a Zacks #3 Rank, implying a short-term Hold rating. We maintain our long-term Neutral recommendation on the stock.
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