The two largest energy exchanges in the world will be competing from the same building as the Intercontinental Exchange (ICE) entered into a definitive agreement to acquire the New York Board of Trade (Nybot) for $1 billion. Nybot will receive $400 million in cash and 10.297 million shares of ICE common stock and become a wholly owned subsidiary of ICE. ICE picks up a much coveted clearing house along with the exchange.
ICE will acquire 100% equity membership in Nybot and the deal will be completed by late 2006 or early 2007.
Nybot President and CEO C. Harry Falk noted that the exchange had talked to a number of potential partners but ICE was the best fit.
During ICE's second quarter earnings call, ICE Chairman and CEO Jeffrey Sprecher expressed a desire to participate in fees from clearing. ICE, an OTC trading platform and parent of ICE Futures (the former International Petroleum Exchange), did not own it own clearing house prior to this deal and does not participate in clearing fees generated from an arrangement with the London Clearing House. In its presentation announcing this deal ICE estimated the annualized profit potential from in-house clearing in 2006 would have been $41.1 million.
“This transaction will bring together proprietary clearing capabilities and state-of-the-art technology with a broad range of high growth global futures and OTC markets. The combination will create the broadest global footprint of any derivatives exchange in a world in which globalization of capital flows is only accelerating,” Sprecher says.
Prior to the merger the two exchanges reached a deal for Nybot to use ICE's trading platform to offer its products electronically. Nybot had been looking for a technology partner to provide an electronic trading platform and had a tentative agreement with the Chicago Board of Trade to place its contracts on the e-cbot platform. “Additional opportunities exist around electronic trading. ICE's platform can bring increased access, volume and liquidity to Nybot's strong solidly growing suite of products,” Sprecher says.
When Nybot moved into the New York Mercantile Exchange (Nymex) building in 2003 there was an expectation the two New York exchanges would merge. Now Nymex faces having it largest competitor in its own building. In a statement Nymex said the deal is further evidence of the competition and consolidation in our industry and is reviewing the details.