When talking to Intercontinental Exchange (ICE) Chairman and CEO Jeff Sprecher you don’t get the impression of a global investment titan or Master of the Universe type. Sprecher is pretty understated. Yet the story of how he took a regional energy exchange that he bought as a resource for other business interests and grew it into an international behemoth is truly remarkable.
When Futures decided to bestow a Person-of-the-Year honor, Sprecher was a natural choice. The funny thing is that he sort of stumbled into the industry despite the fact that he has since built ICE into one of just a few essential trading venues in the world; encompassing futures, cash equities, equity options, clearing and swaps trading.
In typical understated fashion Sprecher says, “No one is more surprised than me. It is not what I envisioned when I started the company,” regarding the 14-year growth and acquisition odyssey of ICE (see “Sprecher: Building a 21st century exchange business,” page 12).
Sprecher’s genius appears to be seeing trends early on and putting his firm in a position to profit from them. “The events and the environment presented themselves such that it became too interesting not to follow where the market was taking ICE,” he says. “We’ve never had a plan on where to go, we just are constantly trying to figure out where our customers need to be, and be there first.”
Futures readers should understand the benefits of identifying a trend early on and riding it to big profits.
It has been a year since ICE closed on the acquisition of NYSE Euronext so it was a good time to catch up with Sprecher regarding the integration of NYSE into ICE and to look at how he took a small regional energy platform to the pinnacle of trading.
He has driven change in every industry he has entered so it will be interesting to see how the cash equity world evolves during the next few years.
Speaking of evolution, that appears to be what the entire futures industry is facing. In our annual pulse of the industry and look at the top futures commission merchants (FCMs) we talk to several FCM leaders about the challenging environment for futures brokers. You may notice that that we only list 40 FCMs this year instead of the customary 50 (see “Top 40 Brokers: End of the ‘new normal,’” page 40). This is because the entire universe of registered FCMs listed by the Commodity Futures Trading Commission (CFTC) only numbers 80. We thought it would be silly to list a “top” 50. These numbers are as of Sept. 30. The total was 82 when we took our preliminary look based on the August CFTC update and we know of a couple more that are going away by year-end.
The FCMs we spoke to expect to see more consolidation, especially in the small-to mid-sized non-bank FCM space. Increased regulation and the zero-interest-rate environment have been tough on this group, and many in the industry have speculated on the survivability of the independent FCM.
Despite the numerous challenges there is a hint of optimism in our conversations with FCMs. While no one knows when the Fed will move its Fed Funds rate higher, the fact that tapering is complete and that the question is now “when” the Fed will move, not “if” they will move, has increased volatility in the interest rate sector this year with the hope of more of the same in 2015.
Whether FCMs will translate this into interest earnings on the float or not is another question. Jefferies CEO Patrice Blanc seems to think that ship has sailed as new regulations will make it difficult for FCMs to earn interest even after rates rise. “Interest income is gone and I don’t think it will come back in a significant way, even after interest rates move up,” he says.
Another area of optimism involve changes at the CFTC, led by new Chairman Timothy Massad, who has already altered the most onerous aspect of the residual interest reinterpretation this past November and has struck a conciliatory tone with the industry. ADM Investor Services’ Tom Kadlec says the change on residual interest “demonstrates a willingness to listen to industry participants.”
Some of the optimism in the industry has to do with growth coming out of Asia. One only needed to stroll down the exhibit floor of the recently held Futures Industry Association’s Futures and Options Expo in Chicago. There were a lot of Asian-based exhibitors, including several brokers poised to make connections with U.S.-based customers. While Asian exchanges have been a mainstay at this event, the emergence of brokers is an interesting development. Lynette Lim, CEO of Phillip Futures, points out that Chinese-based FCMs are looking to expand into the United States.
The event was well attended and there was a genuine buzz about the future. I recall commenting on this event last year and suggesting the theme could have been described as “clinical depression.”
Not to say the industry isn’t facing major challenges, but the arrow appears to be pointed up and traders are looking forward to the end of the “new normal.”