Energizing The Markets
Q&A With IntercontinentalExchange’s Jeffrey Sprecher
When news broke late last year that IntercontinentalExchange, Inc. – ICE, the Atlanta-based energy trading company started by CEO Jeffrey Sprecher 13 years ago – was buying the New York Stock Exchange for some $8.2 billion, there were rumblings throughout the financial world. Some observers could hardly contain their bewilderment. Who was buying what? The seat and symbol of American capitalism to be owned by a company in Georgia?
In fact, Sprecher had quickly and fairly quietly built ICE, sometimes described as an eBay for energy, into a global operation that was bringing technology to an industry badly in need of it and aggressively buying up both tech companies and commodity exchanges. When ICE went public in 2005, it was worth $600 million. When the New York Stock Exchange transaction is complete, it will be worth $22 billion.
Susan Percy talked with Sprecher at ICE headquarters in Atlanta. Following are edited highlights of the interview.
GT: When do you expect to complete your purchase of the New York Stock Exchange?
Sprecher: The best we can say now is that it will be in the second half of this year. It involves approval from up to 14 different countries, including some remote locations like Japan and Qatar and Poland. We’re halfway through that process with the hope that we can get it coordinated at one time.
GT: Tell us about ICE.
Sprecher: I started it in the year 2000, which was the height of the Internet dotcom boom. I had a simple idea that you could match buyers and sellers of commodity contacts over the Internet. So we’ve just grown that into a global business now that matches buyers and sellers on many asset classes. We charge a commission on every trade. We’re a bit like eBay. We don’t trade ourselves, and we don’t have positions in the market. But we use technology to allow buyers and sellers to find each other.
GT: What made Atlanta a good place to start the company?
Sprecher: I had no idea how to start an Internet company, so I looked around and I found this small firm that was here in Atlanta that was failing, and I bought it for $1.
GT: Really? A dollar?
Sprecher: And I agreed to assume all its liabilities. The company was losing a million a month. So I quickly reorganized the company and shut down its existing businesses and asked the technology team to build a platform for trading commodities. At the time I was living in California and assumed all the people here would want to move to California, because I couldn’t imagine people not wanting to live in California. And to my great surprise, not a single person was willing or interested in moving to California, so it was pretty clear that I needed to be here. The company was located in the building you and I are sitting in today. We’ve been all over the building – from having a tiny little office to being the major occupant.
GT: It was hard to miss the condescension in some of the national coverage of your bid to purchase the New York Stock Exchange – an Atlanta upstart buying the world’s most revered financial institution. Did that bother you at all?
Sprecher: It’s interesting because we have been basically buying historical exchanges since we started the company. We bought the Coffee, [Sugar] and Cocoa Exchange and Cotton Exchange, which is in New York [both are part of the New York Board of Trade] and which was in the movie Trading Places with Eddie Murphy. If you remember, the Mortimer brothers were trying to corner the orange juice market.
GT: I do remember.
Sprecher: I think people in the coffee, cocoa and cotton business had the exact same attitude when a relatively young company bought this more than 100-year-old business and moved it onto the Internet. So it wasn’t completely a surprise. We’ve experienced it before. The New York Stock Exchange is probably the best-known exchange in the world. If you go to the stock exchange today, you will see literally hundreds of foreign tourists having their photos taken in front of the building. It represents American capitalism. It’s an unbelievable symbol of what’s made this country great. So we’re not completely surprised that people are watching.
GT: There’s certainly a contrast in styles – a very high-tech owner for a pretty staid operation.
Sprecher: We’ve been asking ourselves how we want to send the message that we are on the cutting edge of technology and cutting edge of accessing global markets, which you are allowed to do easily with technology, and yet still keep the important imagery of that building as the center of global capitalism.
GT: What have you determined?
Sprecher: We have a great benefit in that there are 47 news organizations that are broadcasting around the clock from inside that building, so it’s a place where you can use media to get your message out and a place where media want to coalesce to talk about financial markets. So we have the opportunity as we evolve the company to communicate that in a way that is really unique to most businesses.
GT: You mentioned other acquisitions. Would you talk about some of those – and the strategy behind them?
Sprecher: The first major company we acquired was the International Petroleum Exchange of London [now ICE Futures], which was the largest energy exchange in Europe. At the time, it had no technology and was completely operated on the floor with people flashing hand signals in brightly colored jackets. We were a one-year-old company and acquired this very important business, because management saw that technology was changing and they were behind and they wanted to attach themselves to some technology-savvy managers. So we started on the idea of taking analog businesses and making them digital within the first year of the launch of our company, and we’ve been doing that ever since.
GT: What other kinds of companies have you bought?
Sprecher: Along the way, I’ve also acquired a number of technology companies, particularly those where there have been really good employees, as a way of getting technology-domain knowledge and talent. So we’ve been a mix of acquisition of major businesses but also the plumbing that makes the business work.
GT: Your company has some history with Enron, doesn’t it?
Sprecher: When we were initially specing out our technology and how we would match buyers and sellers, we started talking to major buyers and sellers in the energy space, one of which was Enron. Enron shortly thereafter launched their own trading platform in competition with us. It was a unique business model in which all buyers would be buying commodities from Enron and all sellers would be selling commodities to Enron, and Enron sat in the middle. That platform really took off in 1999. We thought we were not going to be able to be successful by being a neutral platform. We were just like eBay, an intermediary. But when Enron collapsed in 2001, the market recognized that it was dangerous to only do business with one company, and it validated the need for a neutral platform. And we were sitting here ready to go. At that moment our business really took off.
GT: Didn’t you make a bid for the Chicago Board of Trade?
Sprecher: Within our industry, we very famously made a hostile takeover attempt and failed to acquire the Chicago Board of Trade. At the time, we were viewed by the City of Chicago as outsiders, so the company was sold to the Chi-cago Mercantile Exchange and was basically the merger of two crosstown rivals. New York has been much more open to the idea that somebody from outside the city and outside of Wall Street can come in and help take the New York Stock Exchange to the next level.
GT: What made this the right time to go after the New York Stock Exchange?
Sprecher: I tried to buy the stock exchange a year and a half ago in a hostile takeover. At the time, we were not big enough to afford to buy the entire exchange, so we went together with NASDAQ. The two of us were going to buy it together and break it into two. NASDAQ wanted the U.S. operations, and I was going to take the European operations. That failed. In the intervening year and a half, our company continued to grow to the point we were big enough to acquire the entire stock exchange.
GT: Any other factors at play?
Sprecher: Even though we had made a hostile bid, Duncan Niederauer, the CEO of the New York Stock Exchange, and I maintained a personal relationship. The New York Stock Exchange, I think, came to the conclusion that we were the right partner for them. So the planets aligned, and he and I sat in a room and did a deal.
GT: Will you keep your corporate headquarters in Atlanta?
Sprecher: Yes, because the senior management is here in Atlanta, but we will keep the New York Stock Exchange building and name for that business.
GT: Will you be spending more time in New York?
Sprecher: We have a 300-person office there already. I have always spent time there because of our customers. But, yes, at end of day, the opportunity to help take the New York Stock Exchange to the next level is really intellectually interesting to me and other managers here.
GT: Even though your business is built on technology, you have had a lot to say about the importance of the human factor.
Sprecher: All of us are now [interacting] with technology. We like the efficiency. But when things go wrong, that’s when you need a human; and you need that human to understand your problem and be able to efficiently correct it. We no longer have a lot of patience with technology. So the trick is figuring out the right balance, how we can allow people to be independent and mobile and efficient with technology, but still have a human touch in there so you get a sense you’re not completely on your own if things go wrong.
GT: How does that work in your business?
Sprecher: In markets generally, regardless of what you’re buying or selling, we all want [to know] that we are being treated fairly – in trading markets, [we want] the sense that there is regulatory oversight, that there are rules of law. Some of those can be monitored and imposed by technology, but at the end of the day you need humans to interpret behavior; so markets do like knowing that there are people who are monitoring what’s going on. I’m striving to find the right balance, my company is striving to find the right balance – because if you can do that, you will be incredibly successful.
GT: You took your company public a few years ago.
Sprecher: We took the company public in 2005 and took it public on the New York Stock Exchange, and I stood on the balcony overlooking the ex-change and pushed the button that rings the opening bell. (I mention that because people thought it was like a cowbell – that part of the New York Stock Exchange is actually electronic.) It was the highlight of my professional career and that of my colleagues, an unbelievably rewarding symbol of our ability to have built a company that can go public.
GT: What did that mean to your company in terms of growth?
Sprecher: On the day we did that, we had about a $600-million market value. When we close on our New York Stock Exchange deal, we’re going to have about a $22-billion market value. You can be a private company and raise money through venture capital or friends and family – I did that up until the year 2005. But if you really want to be a global firm and have access to capital, there is nothing better than being listed on the New York Stock Exchange. It’s really allowed us to have the capital to build a big business, a global business. The trend lately, particularly among a lot of Silicon Valley startups we’ve seen, is to avoid going public, because I think entrepreneurs don’t like the regulation and oversight that comes with going public. But I’m an example and this company is an example of the great things that can happen if you do have access to capital.
GT: So it’s a trade-off?
Sprecher: Sarbanes-Oxley in the United States requires a lot of internal reporting and accountability, and in that sense it’s a cost of business. But in exchange for undertaking that cost and discipline, you can have access to the greatest capital markets in the world, an almost unlimited amount of capital. I personally feel that the juice is worth the squeeze.
GT: Beyond your own company, what do you see looking at the markets?
Sprecher: I’m optimistic, particularly for the business we are in. As part of this acquisition, we’re going to be moving into the hedging of interest rate risk. The western world is basically in a zero interest rate environment, and I don’t think that is long-term sustainable. As interest rates rise, which I think they will, people will need to hedge [protect their investments] their exposure to interest rates, which will be good for the kind of risk management trading that we do there.
GT: And stocks?
Sprecher: Stocks fell out of favor after the 2007-2008 financial turndown, and I think over time people will come back to equities because they are a very good long-term hedge for inflation. There’s a lot of innovation going on now, particularly in the U.S., both technology and energy innovation. I think people will want to participate in that through the ownership of stocks.
GT: Civic engagement is a hallmark of Atlanta business. Did that come as a surprise?
Sprecher: It’s interesting because I’ve never seen a city that has so much civic involvement by business leaders. It’s a city [where] if you want to become involved, most civic organizations will actually open their doors and welcome your involvement. In many cities there is some kind of societal pecking order in how people get involved and the roles they play. Here I’ve found it to be an incredibly open society for those who want to contribute.