Fixed income, data services improve first half record at ICE

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ICE, the exchange operator and provider of data, technology and market infrastructure, reported its best second quarter on record after posting a record first quarter this year.

Warren Gardiner, ICE’s chief financial officer, said on the earnings call that ICE had the best second quarter in company history, adding to growth of 12% in the second quarter of 2021. Net revenue for the second quarter of this year was 1, $8 billion, up 8% year over year.

“In the first half of the year, we increased sales, operating income and cash flow,” added Gardiner. “Recurring revenue, which accounts for approximately 50% of our total revenue, continues to strengthen alongside growth in our diverse transaction-based businesses.

Jeffrey Sprecher, ICE Chairman and CEO, said on the conference call, “Against a backdrop of continued volatility and uncertainty, our strong performance in the second quarter reflects the value of our markets, technology and data services. Our strategic diversification across asset classes and geographies allows us to better innovate for clients and drive growth across a range of macro environments.”

Source: ICE

exchange service

The exchange’s net revenue was $1 billion in the second quarter, up 13% year over year. ICE said the strong performance was driven by an 80 percent rise in interest rate futures and a 36 percent rise in equity derivatives earnings.

Gardiner said, “Importantly, total open interest, which we think is the best predictor of long-term growth, was up 11% in July from late last year, including 6% growth in energy and 21% growth in financial futures and Options complex.”

Cash stock and stock option income increased 17% year over year in the second quarter. In July, ICE also migrated the NYSE Arca options platform to NYSE Pillar technology, which Gardiner said was in the process of processing the volume of news feeds.

Fixed income and data services had record second-quarter revenue of $512 million, up 13% year over year. Fixed income transaction income increased 78%, including 85% growth in ICE bonds and 76% growth in credit default swap clearing.

“The strong growth was driven in part by clients providing more capital for CD trading and our continued efforts to institutionalize our bond platforms, where we are seeing market share gains in our municipal bond business,” said Gardiner.

Lynn Martin, EIS

Lynn Martin, NYSE President and Chair of Fixed Income & Data Services, said on the conference call that the growth in fixed income trading in the second quarter was the result of the company’s efforts to build the infrastructure to serve the institutional market with ICEs connect communal binding execution platforms.

“Over the past two years, we’ve really focused on leveraging our market-leading assets in the Muni ecosystem, including our data assets,” she added. “Our index business now serves as a benchmark for more than 60% of the assets under management in this area.”

She went on to say that the institutional share of ICE’s Muni execution platforms has doubled since 2020, growing 50% year over year in the second quarter.

Ben Jackson, President of ICE and Chairman of ICE Mortgage Technology, said on the conference call that rising inflation has created an interest rate environment that many customers have not been able to navigate for over a decade, while the ongoing war in Ukraine is reshaping the country’s economy global energy supply chain, creating new risks and uncertainties for market participants.

“In our rates markets, we have seen record year-to-date volumes in our Euribor contracts as clients increasingly seek to manage risk associated with rising interest rates in central bank activity across Europe and the UK,” Jackson said. “This heightened risk has also contributed to the strength of our equity derivatives complex, resulting in an 18% year-to-date volume increase.”

environmental contracts

Jackson has continued to increase energy contract volumes, particularly global gas contracts, but governments, corporations and market participants remain committed to reducing carbon emissions, and ICE has one of the largest networks of environmental products, including renewable fuel contracts , CO2 certificates, nature-based solutions and more certificates for renewable energy.

Ben Jackson, ICE

“The breadth of our complex, coupled with the growing importance of carbon pricing transparency, has contributed to a 19% compound annual volume growth at our environmental complex over the past five years,” Jackson added. “As the clean energy transition continues to bring new complexities, uncertainties and volatility to energy markets, our global environmental suite along with our gas and oil complexes will provide the pricing transparency across the energy spectrum needed to manage these evolving risks .”

Martin continued that ICE’s strength in fixed income data and its ability to link alternative datasets with market-useful data means the company is uniquely positioned to provide transparency around ESG, particularly around climate risk create.

In December 2021, ICE announced the acquisition of risQ ​​and Level 11 Analytics, which use data-driven technologies to manage climate change risks. Since the two companies’ founding in 2016 and 2019, respectively, risQ ​​and Level 11 Analytics have combined data from geospatial mapping systems with financial stocks to provide climate risk analysis and investment decision support for US municipal, mortgage-backed securities and real estate markets.

In July of this year, ICE announced the acquisition of Urgentem, which provides Scope 1, 2 and 3 greenhouse gas emissions data, analytics and tools for over 30,000 public and privately held securities. ICE said this data will be used to enhance its global sustainable finance offering, which includes an ESG corporate database of over 10,000 companies, climate risk services for US municipal and mortgage-backed securities, and a suite of global corporate climate indices and environmental contracts.

ICE has also launched an ESG Geo-Analyzer, an on-demand platform that uses user-provided location data such as street address, latitude/longitude, or zip code to analyze the climate risk and social impact characteristics inherent in each location or Portfolio of real estate surrounding the contiguous United States It can be used to analyze commercial and residential real estate, entire loan portfolios and real estate holdings, and the asset-backed securities or business and corporate activities associated with those locations.

Martin said: “We have the ability to offer ESG information, measured by geographic coordinates, in the US and we have plans to expand this globally.

Acquisition of the Black Knight

In May, ICE announced the acquisition of Black Knight in a transaction that valued the mortgage software, data and analytics company at $13.1 billion to enhance ICE’s position as a provider of end-to-end electronic workflow solutions for expand the mortgage industry in the US . ICE management said on the conference call that it would not comment on the acquisition, aside from continuing to expect the transaction to close in the first half of 2023.

Eoin Mullany, Berenberg

Eoin Mullany, Analyst at German financial services group Berenberg said in a July report that ICE’s 25 percent P/E discount to peers was at an all-time high due to market concerns about the acquisition and increased leverage. The report highlighted that ICE has expanded its mortgage business through acquisitions such as Simplifile, Mortgage Electronic Registrations Systems (MERS) and Ellie Mae.

“Although some investors question the timing of the Black Knight acquisition as lending falls and mortgage rates rise, we believe it makes strategic sense,” Mullany said. “The acquisition fills gaps in ICE’s mortgage offering and brings more recurring revenue to the mortgage business, which will increase from 50% to 70%.”

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