Formed in early 2000, the Intercontinental Exchange, usually known by its acronym ICE, is an online electronic trading platform for physical commodities and commodity derivatives. While ICE's primary commodities are power and natural gas, ICE also lists precious metals, crude oil and refined products, weather derivatives, and emissions allowances. ICE also owns and operates the International Petroleum Exchange (IPE). ICE is web based, and much of its popularity can be attributed to its simplicity of use.
Trading on ICE does not compare well to the trading format most non-professional traders are familiar with. There is no designated market maker, and one posts one's own bids and offers, or hits the bids and lifts the offers of others. The two counterparties are then matched up directly. So, instead of deals being cleared through a central exchange or clearing house, deals are direct counterparty-to-countarparty trades. Recent developments have added the function of OTC clearing for many commodities in order to bring the advantages offered by the established commodity exchanges in New York and Chicago, but many products must still be cleared directly.
The company was originally founded with support from the six largest energy trading shops in the market. American Electric Power, Aquila energy, Duke Energy, El Paso Energy, Reliant Energy, and Southern Company Energy Marketing each came together to provide the venture capital to launch the original ICE platform. As an aside, the fortunes of those six companies says a lot about the rocky history of the energy trading industry. Of the six, only two--AEP and Duke--still exist in the same capacity they did in 2000. Aquila has exited all energy trading, as has El Paso. Reliant spun off its deregulated side, and just a month ago (February '02) announced plans to exit energy trading. Southern Company also spun off its speculative trading arm into the new company Mirant, which today teeters on the brink of bankruptcy.
Early on, ICE met stiff competition from two other online trading platforms: Enron Online (EOL) and an offering from brokerage shop TradeSpark. The TradeSpark screen never really thrived, however, and gradually dwindled into complete disuse, and the EOL screen went offline with the bankruptcy of Enron in December of 2001. This catapulted ICE to the fore, as its only real competition in power trading was voice brokerage shops. As a result, 2002 saw record revenues and profits for the Intercontinental Exchange.
Finally, ICE has been the recipient of numerous awards, including:
- Best non-bank site for commodities, 2002
- Business Week Top Entrepreneurs of the Year, 2002
- Forbes.com Best of the Web, Fall 2002
Information for this write up came variously from personal experience and The Intercontinental Exchange's website http://www.theice.com