ICE vs. NYSE-
As a former Board member of the New York Mercantile exchange, and after dealing with the ICE while at NYMEX, I find the news today very interesting.
In 2000 the ICE made an offer to NMYEX. Or should I say more of a demand. The demand was that if NYMEX didn’t invest 10% into ICE, then they would go after all of NYMEX’s products .
This started a war between NYMEX and ICE that continued for years. ICE was founded by members of Goldman Sachs and other of NYMEX’s largest customers. The NYMEX Board under estimated ICE and it continued to grow and take over more market share.
There was a time I felt a merger between the two companies would enhance the company’s bottom line and stock price. If the two exchanges could cross margin their energy products, it would open up a tremendous amount of equity which, in turn, would enhance volumes and help both exchanges grow.
After the NYMEX IPO, NYMEX and New York Stock Exchange were in talks to merge, but these talks fell apart over pricing and management issues.
If the New York Stock Exchange is smart and understands that the world of trading has changed drastically in the last 10 years, and they are considered old school as well as losing market share by the year, they will need to consider this possibility of merging or being taken over by the ICE very seriously.
The staff and board of ICE are on the cutting edge and could rebrand the NYSE, which has been left behind on the exchange front. The way that the New York Stock Exchange handle the closing of the exchange for two days during super storm Sandy, that they could’ve easily open the exchange while not opening up the building, shows me they are concerned about their brand and didn’t want the public to realize that without anybody in the building trading could have continued without issue.
After September 11, 2001, all the exchanges made contingency plans that if New York City was closed down for an extensive period of time the exchanges could still open the next day without issue.
Once again, looking at this deal between ICE and the NYSE, the real question is – is there a way to cross margin products -stocks, futures, and derivatives to free up even more equity which will enhance volumes on both exchanges?
As someone who traded, was President of a Clearinghouse, and was a Board member of a major exchange for seven years as well as an Executive Committee member, I feel ICE taking over the New York Stock Exchange would be very beneficial.
It will be interesting to see how regulators look into this deal. The CFTC had no issue allowing ICE, which is a foreign exchange based in Atlanta, to create and put on their platform a WTI crude look-alike product and settle it on NYMEX settlements while having no authority to look at positions because ICE was regulated by the FSA in London.
NYMEX still holds the record of any exchanges value on their IPO and the sale of the exchange to the CME.
The debate of this merger will be enjoyable to watch from my perspective. Please feel free to leave comments I look forward to hearing your views.
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Thank you for your comments. ICE has a successful strategic development track record in the US and Europe and this could prove to be another. How do you expect the CME to react?
In the Past CME and NYMEX have been slow to react against ICE and has given ICE every chance they needed to grow. NYMEX Failed to buy the IPE as well as NYBOT, which allowed ICE to gain a foot hold in energy and then in Clearing. Being an NYMEX board member from 2000-2007, I have seen members of the board can be kept on not by brain power but on who you know – ICE on the other hand has Goldman roots and their board has always been a think tank with bottom line accounting – CME Doesn’t really have a chance to react while there are many commodity exchanges there is only one NYSE and even if their brand is not what it once was – ICE will do a great job making the most of it and take it to its logical next level
Mr. Greenberg, I read your note with much interest. To me mergers are as much about cultures as business rationale. In this deal, the latter makes sense. Cultures, only time will tell. NYSE will need to adapt very quickly.
I am CEO of a Silicon Valley company backed by many the same players as ICE and are working on bringing exchange like liquidity in physical commodity markets. An area where ICE and CME both lag tremendously in our opinion. We will watch this deal with as much interest as you!
Naveen , Sorry for the late reply. I agree this will be an epic merger. It leaves the CME in the dust and with no real partner to grow with . After they bought NYMEX they tossed out 100′s of years of knowledge. They have a mind set that they know more then they do and do not have the strength on their board as ICE does , the CME board in the past was up to date and on the cutting edge, I just don’t it now … You are in a very hard field yourself . I was involved with many of the new products on NYMEX as a Board member from 2000-2007 and I understand how hard it is to get traction ..Thank god for Clearport it made the IPO as well as the deal when we sold to CME – both great sales from NYMEX point of view –
If i can be any help to you please let me know David
David – yes, CME needs to be scratching their head. May be Bob G at NASDAQ and CME may be the only single people left. Desperation can lead to deals, most do not make sense but emotions do get triggered!
It will be great to connect.
I think banging their heads might work better then scratching ,They have years of thinking how great they are to get out before they can move forward . They do have a platform that if moved in the right direction , but again the new cleared swap market could be the next world Lehman event .