ICE
#Thank you.
I think at the end of the day, we have no idea.
So it's an easy answer to give you.
It's their challenge to demonstrate why they should be allowed to merge, and we'll be a passive audience, in appreciating what they do.
Sure.
Well, first of all, I'd note that we've been growing our interest rate futures business in Europe ---+ I think it was up 34% year-over-year.
So that's a franchise that we continue to invest in, and have had great results with.
We compete with other people that have already offered the solution that you just described.
And so, we are already competing against that kind of offering.
Stepping back, if you say how many people in the world are there, that have OTC interest rate swaps, that are fully or largely offset with futures contracts.
In other words, that they've completely hedged out their risk.
The people that do that are not end users.
The people that do that are dealers.
People that are offering something to one party then immediately hedging it out, so that they take out risk.
That dealer community is under pressure, as you I'm sure know.
It's been shrinking, if you look at announcements that are going on.
And so, it is unclear that the paradigms of the past necessarily are going to be the paradigms of the future.
And so, we're trying to build out our franchise.
We've launched a lot of new products to serve our customers, as we anticipate continual changes in the way that these financial businesses operate.
But other than that, we're competing in that world today, and we're doing really well.
Sure.
Well, we've been living with the ---+ the whole industry has been living with the prospect of these rules being implemented now for many, many years.
So we continue to get our businesses ready to be responsive to those rules.
I think the way it impacts the entire market, is that there is a goal to create more competition, which to you and I, means more fragmentation of markets.
We also think that it will be very, very difficult and hard, and very little incentive for any third-party to start a major clearing house, when the existing clearing houses have open access.
So in an odd way, while it's meant to stimulate competition it, at the end of the day probably entrenches the incumbents including ICE, who has a large clearing presence in Europe.
So we continue to build out our capabilities inside that clearing house, to get ready for access.
And we've continued to make sure that the ancillary services that we provide around the trading venues, where we do believe there will be fragmentation, offer a lot of capabilities to our end-users.
So you've seen us take on the ability to create more indices, improve our data offerings, improve the kind of consultative compliance services that we offer to our customers.
We've worked hard on improving our delivery mechanisms for physical products and all those kinds of things, which will all largely become unbundled as the market fragments, and create opportunities for us.
Sure.
We had best quarter in our history.
So yes, there is competition, but clearly in terms of our ability to deliver financial results, we're doing very, very well.
We sit with record open interest in Brent as I mentioned.
And so, we have very high prospects for that franchise going forward.
There are always going to be entrants to this business.
As I think I've mentioned in other kinds of businesses, people have this figured out ways of expanding the market.
That expansion, while it benefits them, also has side benefits oftentimes that benefit us, and I think you're seeing that in the numbers.
Fragmented markets, in my mind are bad for end-users, they're very good for intermediaries.
They create much more arbitrage capability, that brings a new kind of arbitrageur to the market that wants to [lag] in all of the various different venues, which drives volume.
And so, ICE really doesn't care about market share.
We really want to have people that want to value our services, and pay us to provide them.
And so that's the market we focus on, which is a subset of what you're talking about.
And we're doing really, really well in the market for people that want to pay for services, and that's why we continue to grow.
Yes, what we said on the last call was that by the end of 2018, that we would be largely through the remaining $220 million of synergies that we had to go.
That was the $150 million of IDC and the $70 million of NYSE.
I will note again what I said then, which is what is IDC, and what is ICE, and what is NYSE, it continues to blur.
So we're really focused on delivering on that $220 million expense reduction, again largely accomplished by the end of 2018.
We had mentioned last call, $75 million of that would come out this year.
We increased that now to $85 million to $90 million.
And so, our expectation to raise there.
We announced that Ben Jackson has taken over as the Chief Commercial Officer, and he and the teams have been in with IDC 24/7 over the last two or three months once we've closed the deal, and continue to make progress in identifying the specific actions to deliver the synergies this year.
And they're working on building the 2017 execution plan as well.
So as we move through this year, as we get better visibility, we'll talk to you about that.
What I would simply conclude is, of the $220 million, by the end of 2018, we're going to get $85 million to $90 million this year.
And we're very confident that we will deliver on that objective over time.
We have not.
We continued to make those investments, and it's one of the reasons why we're confident in our ability to grow our data business 6% to 7% this year.
Because as we reduce expenses through synergies, it in no way impedes our ability to invest in future growth.
That's a really good question, and we've been involved in extensive dialogues with the ratings agencies over the past few months, on exactly your point.
Which is the business model that ICE had, and the financial structure and capital structure that ICE had, when we did the NYSE deal back in 2013, versus where we sit today in 2016 is very different.
Pre-NYSE, 80% to 90% of our revenues were volume-based.
Post NYSE, it was still 70 % to 75%.
We're now at a point where annuity light businesses are about half our revenues, which introduces significant stability into the financial model.
You saw the very strong cash flows in the first quarter.
While you can't multiply that times 4, because it's got our annual listings billing in it.
We clearly, are on track to a number that's going to be around $2 billion of operating cash flow for the year, which you'll note is significantly above where we were the prior year.
Our CapEx needs have grown slightly, and so even netting that out, our free cash flows are very significant.
You saw in the quarter alone, we were able to knock 3/10 of 1 point of leverage out in the first quarter.
And so I think all of that summed up, is why I mentioned in my prepared remarks, that we're now comfortable once we get below 2 times leverage, which we think we can do late this year, or certainly early next year.
We believe that will support our overall rating, and that rating is important to us.
And so, we're going to do things that are necessary to support it.
But as you mentioned, I don't think 1.5 times is that bogey any more, given what we've done.
I think we could comfortably operate around 1.75, 1.80, and again below 2 times.
I think we're back active, looking at ways to return additional capital to our shareholders, and we're looking forward to doing that.
Yes, I mean, I loved it, in the financial sense, in that on a year-over-year basis, that business contributed well in the quarter.
We had seen good growth, as we moved through the back half of last year, and the first quarter results were solid as well.
It is still largely around the LIBOR business.
But as we continue to build out ICE swap and the gold fix and other of those products, we would expect the contributions from that business to continue to improve, as we move through this year.
Well, first of all, I wanted to point out to the form and substance of the way we put that release out was really a relatively standardized form.
And the four points that you've outlined are really available to all participants generally, in any UK takeover situation.
So there's nothing ---+ you shouldn't read anything into the fact that we've mentioned those four, in terms ---+ of trying to get in our heads, on contemplating where we go from here.
Those are all available to us, and to anyone else in our position in other deals.
And we'll just have to see how life progresses.
But don't read anything beyond the written words there, into our actions.
Yes, so each of those ---+ the acquisition of the business from S& P that you noted is ---+ I think we discussed earlier, is right now going through an anticipated competition review.
We suspect it will work its way through this year, and remain confident that we get to closing around that timing.
As we get closer to the end of the year, and the close of that deal, we'll be back to you to say a little bit more about what its contributions will be to our financial statements, and how ultimately we'll fund it.
You will likely have noted when we announced the deal, that we noted that we had the flexibility to pay in either cash or stock at the time of the closing.
Obviously, which we choose will depend on when the closing happens, and what else happens between now and then.
Sure.
First of all, there are tremendous synergies across the range of businesses that we've acquired recently, and that's really what our plans call for us doing, is unlocking those synergies, the revenue synergy opportunities across them.
But just by way of example, we launched these new treasury indices at IDC, but we were able to develop those, using a very strong team that we have at the NYSE, that has a very intimate relationships with large ETP and ETF providers.
So we're able to very quickly have a dialogue with a unique customer base over their new products sets, their ideas on how they're going to grow that market, and what capabilities we may have to support them, that neither Company as a standalone had on their own.
And it was amazing that we were able to pull that together within the first month or so of ownership, and it's paying dividends.
Obviously, we announced very quickly that BlackRock was moving some large ETP products onto those indices.
And now, our team is out working with a lot of other providers and users of indices, to advance and accelerate those products.
I would just make the point to you, that much of this data revenue that we're talking about is subscription-based, which gives <UNK> the ability to have great confidence, when he tells you that it's going to grow at 6% to7% this year, because many of those contracts are being signed, or have already been signed.
And so, we have tremendous visibility into them.
Those tend to recur, so that's the nice thing about that model.
So looking forward, we would hope that we're doing a good job with those customers, and that they will continue to re-sign with us.
And meanwhile, we take the products that we developed out on the road, and find new customers for them, so that we can have growth on growth.
And just adding slightly to that, and touching on the end of your question, the thing that excites me about this is the 6% to 7% this year is really based on the strong performance of the individual parts.
All the effort to come together and to integrate and work together, as <UNK> just talked about, we'll get some that yield in the year.
But it's really ---+ that's about what's going to enable us and grow in 2017 and 2018 and beyond.
So it's why we've got the confidence, not just in the near-term, where the businesses are doing well this year.
But in the longer term, where we think as the companies come together, the opportunities for growth will only expand.
Well, that kind of intense competition has been in the market for a while, and you can see the results that we posted, which is we're doing phenomenally well.
When you step back and look at payment for order flow, while it became accepted within the intermediary community around the equities market, giving equity kickbacks to large institutions that have very strong brands, and are trying to appeal to retail customers, in an era where the SEC and the Labor Department and others are very concerned, that retail investors be given good guidance as to how their money is being handled, it's a real reputational brand risk for somebody to step into that quagmire.
It would beg the question, did somebody create a product simply to generate churn inside of it, and get these equity kickbacks, or was that really the best listing venue.
What I will tell you, is that all of us in financial services are under pressure by new regulation, and also just best practices, to make sure that we have no single point of failure in our businesses.
And the big institutional investment firms are subject to those same kind of reviews and pressure.
So if we expect that in that ETP, ETF market that people will, for diversity purposes list across of range of venues.
But it's not really economically driven, it's really diversity driven.
We have such a strong offering with 92% of AUM at NYSE.
And you could see with ---+ in the face of the pressure you talked about, 82% of the AUM that was listing in the first quarter came to us.
The reason that is such a strong venue is that we have very, very deep liquidity on the exchange, our exchange, the NYSE [ARP] exchange where we list these platforms, market makers infrastructures are a rule set that really enables these innovative and fabulous listings to come to us, and know that they have every opportunity for growth and success.
NYSE is a brand that is known around the world, and we have been passported into most countries.
And so, the platform that we can offer somebody, in terms of distribution is really unparalleled.
And it's those things that are driving the listings.
I don't believe that payment for order flow is going to have a material impact on this business, nor should it.
And I also, as you probably know, think it's a corrosive mechanism that actually ultimately hurts markets.
And so, hopefully I'm right, and we won't see that corrode these really neat, innovative ETPs that are coming out.
Thank you, Rocco.
Appreciate your help on the call, and thank you all for joining us today.
We're going to look forward to updating you on our progress, as we move through the balance of the year.
Have a good day.
