Interest Rate Derivatives Drive November Volumes for ICE

After witnessing a slowdown in October, trade activity rebounded in November for Intercontinental Exchange Group (NYSE:ICE) with average daily volumes (ADV) of futures and options traded on ICE rising by 13% year on year to 5 million contracts per day. ^[1] The improvement was primarily attributable to growth in trade volumes of interest rate contracts and agricultural derivatives. Moreover, ICE launched its trading and clearing platforms for its Asian platforms – ICE Futures Singapore and ICE Clear Singapore – in mid-November. ^[2] Below we take a look at some of ICE’s reported trading metrics for November and our full year forecasts for them.

We have a $235 price estimate for ICE, which is about 10% lower than the market price. ICE’s stock price has fluctuated between $205 and $265 this year.

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Rise In Financial Derivatives Trade Volumes

In contrast to a 12% y-o-y drop in ADV through October, trade volumes for financial products traded on ICE rose substantially by 55% on a y-o-y basis to 2.2 million contracts per day in November. ^[1] Trading of interest rate derivatives was the major contributor to this hike, as the European Central Bank’s impending decision regarding the rate cut and amount of quantitative easing led to heightened speculation and trading activity. Consequently, the ADV of interest rate derivatives shot up by a massive 71% on a y-o-y basis to 1.9 million contracts traded per day through the month.

On the other hand, the average daily volumes for NYSE equity options were up by about 3% to 3.1 million contracts per day, which was consistent with the 3% growth in total U.S. Options Volume. However, ICE reported low volumes for equity options through the first three quarters of the year, with volumes declining by 21% over the comparable prior year period to 2.8 million contracts per day. ^[3] Correspondingly, the company’s share in the U.S. equity options market fell by about 5 percentage points to about 19% in the same period.

Commodity Derivative Volumes Decline

ICE trades a variety of commodity contracts on its platform, ranging from oil to energy to metals to agricultural products. The total commodity derivatives traded per day declined by 7% y-o-y to 2.8 million contracts per day mainly due to low volumes of energy products. The ADV of combined oil and energy derivatives was about 11% lower on a y-o-y basis to just under 2.5 million contracts per day. The decline in energy derivative trade volumes was mainly due to a fall in trading of natural gas contracts, with volumes falling by 28% y-o-y to 947,000 trades per day. The company recently announced the introduction of 81 new energy contracts, which will be made available on ICE Futures Europe or ICE Futures U.S. starting this month, which could give an impetus to commodity derivative volumes in the coming quarters. ^[4]

On the other hand, agricultural commodities and metals continued to post healthy growth numbers, with volumes rising by as much as 39% y-o-y to 382,000 trades per day. Within agricultural commodities, sugar derivative trading saw a 57% annual jump in trade volumes to 163,000 contracts per day. The company plans to introduce containerized white sugar future contracts from Q1’16, subject to approvals, to further aid growth in this segment. ^[5]

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1. Intercontinental Exchange Reports ICE and NYSE Volume for October 2015, ICE Press Release, December 2015 [↩] [↩]
2. ICE Futures Singapore Launches with Commodity and FX Contracts Serving Asian Markets, ICE Press Release, November 2015 [↩]
3. ICE’s Q3 2015 Results, SEC, September 2015 [↩]
4. Intercontinental Exchange announces launch of 81 new energy contracts, ICE Press Release, November 2015 [↩]
5. ICE Futures Europe to Introduce a Containerised White Sugar Futures Contract in 2016, ICE Press Release, November 2015 [↩]