Jeffrey C. Sprecher, chairman and CEO of IntercontinentalExchange, responds to a recent BusinessWeek.com column on oil speculation
The letter below was sent to BusinessWeek.com by Jeffrey C. Sprecher, chairman and chief executive of IntercontinentalExchange (ICE), an Atlanta-based commodity and financial products marketplace, which specializes in electronic energy markets and soft commodities, in response to a recent column posted on BusinessWeek.com.
I write in response to the June 27 story "High Oil Prices: It's All Speculation" (BusinessWeek.com, 6/27/08) by Ed Wallace. While Mr. Wallace has earned a reputation for challenging conventional wisdom, I'm afraid in this case, as in other recent columns, he has omitted, or chosen to ignore, certain very pertinent facts in regard to the operation of global markets as well as our company, IntercontinentalExchange (ICE), and our markets.
In the most recent column, Mr. Wallace refers to ICE and states that the "'dark, unregulated' futures look-alike markets allowed overbidding of oil contracts with little if any oversight from regulators." Our markets are neither dark nor unregulated. The fact that he cites other sources in using disparaging or misleading information doesn't make it true. Mr. Wallace cites a select group of facts regarding supply in the oil markets. Yet he has deliberately chosen to ignore the facts that we have provided—detailing our exchange's rigorous regulatory compliance and market surveillance functions—which are counter to the statements he included to support his own views.
Mr. Wallace has repeatedly referred to our business as "ICE Futures OTC," which is an entirely inaccurate way to refer to our two distinct energy markets, both of which are regulated and transparent. The correct name of our energy futures business is ICE Futures Europe. The concepts of "futures markets" and "OTC markets" are distinct; thus the name "ICE Futures OTC" is not compatible with any market structure that exists today. ICE operates two separate energy businesses—one a regulated futures exchange and the other a regulated OTC market. With regard to our OTC markets specifically, he failed to mention that ICE holds a 0% market share of U.S. crude oil, gasoline, and heating oil.
Our corporate headquarters are in Atlanta and, as with many global companies, we own businesses in other countries that are regulated in and subject to the laws of those countries. Our energy futures exchange, ICE Futures Europe, is fully regulated by the U.K. Financial Services Authority (FSA). Like all exchanges, ICE Futures Europe undertakes extensive daily position and trade monitoring activities to ensure the integrity of these markets and adherence to exchange and regulatory rules. ICE Futures Europe's market supervision, regulation, and compliance staff is based in the U.K., and our market participants are based in 55 countries around the world. Moreover, the FSA has a formal information sharing agreement with the U.S. Commodity Futures Trading Commission (CFTC) to provide reporting on positions in our markets. On both May 29, 2008 and June 17, 2008, the CFTC announced further enhancements to the already robust level of information that ICE has supplied since 2006 on our West Texas Intermediate (WTI) Crude Oil contract. These initiatives, on top of our existing regulatory and reporting processes, place ICE Futures Europe under the same regulations as those applicable to U.S.-based exchanges.
We began in 2000 as an electronic, over-the-counter energy marketplace and have been credited over the years with bringing neutrality and transparency to previously opaque markets. Our exchange has been trading Brent Crude oil futures, as well as many other European products, for 28 years in a fully regulated, transparent environment. In 2006, we introduced the first cash-settled WTI futures contract, which settles to the closing price of the New York Mercantile Exchange (NYMEX) contract. We have worked with the CFTC since 2006 to ensure that it had all of the information it requested on the contract and its participants. Today, ICE holds an approximate 15% share in the regulated WTI Crude oil markets. Importantly, our contract settles on the price that is discovered on the NYMEX; thus the prices are established by trading conducted on that U.S. regulated exchange, not on ICE.
Understandably, American consumers and our legislators want to find a way to lower gas prices. As many highly regarded regulators, analysts, and economists have suggested, given the complex global economic fundamentals at play, we believe it unlikely that there is a single culprit or a quick-fix solution. For every supply statistic that Mr. Wallace cites in his article, there are equal and opposing views regarding the outlook for both supply and demand, which he apparently chose to exclude. For example, the U.S. Energy Information Administration data show that global demand for oil is outstripping the production of oil by one million barrels of oil per day.
We have built our global business on the integrity, transparency, and neutrality of our markets. ICE remains committed to working with legislators, regulators, and the public to provide continued market transparency and a neutral forum in which businesses can manage risk in the global energy markets.
Thank you for the opportunity to respond.
Jeffrey C. Sprecher Chairman & CEO IntercontinentalExchange
Click here to see Ed Wallace's response.