Six companies to purchase equity position in IntercontinentalExchange

Jul 26, 2000 02:00 AM

Six of North America's leading power and natural gas trading companies have entered into an agreement in principle to purchase an equity position in IntercontinentalExchange, creating the world's largest on-line, over-the-counter (OTC) market for energy and metals. It was also announced that trading in precious metals will commence in August.
The six new IntercontinentalExchange partners are American Electric Power, Aquila Energy (a unit of UtiliCorp United), Duke Energy, El Paso Energy, Reliant Energy, and Southern Company Energy Marketing (a unit of Southern Company). In April, these six companies formed a corporation, the Energy Trading Platform Holding Company(ETPHCo) to create an independent power and natural gas trading exchange. Together, these companies, in 1999, accounted for trading in some 1 bn MW-hours of electricity and 42 bn cfpd of natural gas in North America.

IntercontinentalExchange was founded in March as an Internet-based trading platform for OTC precious metals and oil. Initial partners include BP, Deutsche Bank, Goldman Sachs, Morgan Stanley Dean Witter, Shell Group, SG Investment Banking, TotalFina Elf, and Continental Power Exchange -- which is providing the trading technology and management team.
"The participation in IntercontinentalExchange will result in the creation of the largest independent online market for natural gas and power in North America. It will lead to greater market liquidity and price transparency -- key drivers to a successful online trading business," said Janine McArdle, President of ETPHCo. "The equity participants in this exchange are leaders in their respective industries. We are committed to building an independent exchange that encourages a rapid migration to online trading by providing equal access to all participants to trade across our platform."
In addition to holding an equity position in the Exchange, each of the partners has committed to a significant level of annual participation to provide liquidity. "The expanded IntercontinentalExchange will enable users of our system to trade virtually the entire OTC energy complex-oil, power, and natural gas- across a single platform and on a global basis," states Jeffrey Sprecher, CEO of IntercontinentalExchange. "With the quality, breadth and sheer volumes that our partners bring to the market, we will be able to offer traders real- time access to liquidity and capture a significant portion of the vast market for OTC commodities brokerage," he concluded.

It was also announced that the first of the Exchange's markets, precious metals spot, forwards, and options, will begin trading in August. Energy trading in oil, power, and natural gas products will commence in the fall. There will be no "memberships" in IntercontinentalExchange and no dues or fees beyond those incurred in the process of trading. Participation will be open to all commercial market participants.
As with precious metals and oil products, the overwhelming majority of trading in the OTC power and natural gas markets is conducted via telephone. Of the approximately 2.7 bn-MW hours and 154 bn cf of natural gas traded in 1999, Forrester Research reports that only 0.2 % of electricity trades and 2 % of natural gas trades were conducted online. Forrester predicts these figures will increase up to 25 % and 11 %, respectively, by 2004.
The capabilities provided by IntercontinentalExchange's advanced trading platform will offer OTC participants increased market transparency, liquidity and efficiency while preserving the anonymity market participants desire. The Exchange also plans to develop facilities in the future that would permit market participants to clear and settle OTC products.
The technological backbone for IntercontinentalExchange is The ICE, a robust and scalable trading system. The system provides participants with secure access and global trading support around the clock and throughout the business week.

Based in Atlanta, IntercontinentalExchange offers innovative features such as:
-- robust capabilities for allowing risk managers to dynamically tailor execution based on their assessment of credit and other counterparty issues;
-- a complete picture of market depth;
-- sophisticated support tools for strategies such as synthetic spread trading;
-- and an opportunity for the "paperless back office" through straight-through processing of trade information.
IntercontinentalExchange recently opened offices in London and New York.

Source: IntercontentalExchange via Newspage
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