Trade Volumes, Data Services Demand Lead To Profitable Q3 For ICE

IntercontinentalExchange Group (NYSE:ICE) announced its Q3 earnings on Wednesday, October 28, reporting a 14% annual increase in net revenues to $1.15 billion for the quarter. ^[1] All divisions within the company witnessed meaningful growth through the quarter. Robust trade volumes for cash equity and equity options trading in the U.S. largely drove the growth in ICE’s trading business. ICE’s transaction and clearing fees revenues were up by almost 12% y-o-y to $795 million. Additionally, data services revenues were up by a massive 23% y-o-y to $209 million through the September quarter. The company’s cash operating expenses declined by over 15% year-over-year to $282 million for the quarter. As a result, its adjusted operating margin rose by almost 5 percentage points over the year-ago period to 65.4%.

See our full analysis of IntercontinentalExchange Group here

 Energy, Oil, Commodities Drive Trading Revenues

Derivative trading volumes for oil futures and options has remained high since the end of last year, owing to volatility in oil prices across the world. Although the rate of growth slowed down in Q3 compared to the first half of the year, volumes remained high on a y-o-y basis. The average daily volume (ADV) of oil futures and options traded on ICE’s platform stood at just under 1.4 million contracts traded per day in Q3, a 12% rise over the comparable prior year period. Within the oil category, the average daily volume (ADV) for Gasoil was up by 24% y-o-y to 251,000 trades through the September quarter. ^[2] As a result, revenues generated by trading of Gasoil futures and options rose by 17% y-o-y to $24 million. Similarly, Brent crude futures and options were up by 7% on a y-o-y to 779,000 trades per day, and other oil futures and options were up by 19% y-o-y to 333,000 trades per day. The resulting revenues were up by 5% y-o-y to $65 million and 8% y-o-y to $27 million, respectively.

On the other hand, natural gas derivatives witnessed a modest 2% volume increase through the September quarter with an ADV of just under 800,000 contracts traded per day. Volumes could remain low during a tough period for natural gas product trading, owing to macroeconomic uncertainty and geopolitical conditions in Europe. Despite lower volumes for natural gas products, combined energy derivatives trade volumes were up by about 8% y-o-y to 2.3 million contracts per day. However, resulting revenue was flat over the prior year quarter at $76 million. Similarly, combined trading volumes for agricultural commodities and metal rose by about 19% y-o-y to 353,000 trades per day through Q3, while a lower revenue capture let combined revenues to rise by only about 10% y-o-y to $53 million.

The total number of interest rate derivatives traded on ICE’s platforms through the September quarter were down by about 9% y-o-y to 1.2 million contracts per day. ^[2] Trading of short-term interest rate derivatives was down primarily due to continuing low interest-rate policies in Europe, and the Fed’s decision to not increase interest rates until next year. Correspondingly, revenues generated by the trading of interest rate derivatives fell by about 27% y-o-y to $43 million in Q3.

On the other hand, volatility in currencies and speculation around the exchange rates has led foreign exchange (FX) derivative trading to stay high through 2015 thus far. The ADV for FX derivatives for the quarter was up by 61% y-o-y through the quarter at 51,000 trades – in keeping with the trend observed through the first half of the year. Revenues generated by financial futures and options were up by about 25% y-o-y to $38 million.

Growth In Non-Transaction Businesses Complements Trade Volumes

ICE’s market data services revenue stream witnessed 23% y-o-y growth to $209 million for the quarter. Similarly, ICE’s market data revenues for the three quarters combined have risen by over 22% over the comparable prior year period to $614 million. The addition of SuperDerivatives to ICE’s data services division at the end of last year contributed to the top line growth. The company also announced the $5.2 acquisition of Interactive Data Corporation (IDC) at the end of Q3. IDC serves mutual funds, banks, asset management companies, hedge funds, securities and financial instrument processing and administration sectors. Its annual revenues are likely to be around $1 billion, while the combined data services division could help ICE realize cost synergies of almost $150 million. The combined division now has a broader portfolio of information services and a larger customer base to cater to as the company expects the solid growth rate to continue in the coming quarters.

ICE’s listing business has performed well this year, with revenues growing by about 12% y-o-y to $202 million through the first half of the year. Keeping up the trend, its Q3 revenues were up by over 10% y-o-y to $101 million. The company planned to reduce its existing five trading platforms for NYSE to a unified platform called Pillar at the beginning of the year. Moreover, the company aims to invest in its listings technology systems in a way that will reduce costs and simplify business. Management expects trading, listings and related expenses to decline from 2016 onwards once it implements the unified systems.

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1. Intercontinental Exchange Reports Third Quarter 2015 Results, ICE Press Release, October 2015 [↩]
2. Intercontinental Exchange Reports ICE & NYSE September Statistics, ICE Press Release, October 2015 [↩] [↩]