IPE CEO bullish on post-merger success with online trading platform

Steven Poruban
Senior Staff Writer
Oil & Gas Journal

HOUSTON, Aug. 15 -- International Petroleum Exchange (IPE) CEO Richard Ward told Oil & Gas Journal Wednesday he was optimistic about the future success of the UK-based exchange following its merger with Atlanta-based internet energy market IntercontinentalExchange Inc. (ICE). While in Houston to update members of the press with new information about the ICE transaction, Ward outlined how IPE came to choose ICE as a platform and pointed out some of the challenges ahead for the newly formed company.

IPE's choice of ICE
To some industry observers, IPE's selection of ICE came as somewhat of a surprise. The search for the appropriate trading platform took IPE the better part of a year.

In April 2000 -- shortly after demutualizing -- IPE held meetings with its members for input on electronic trading.

"The view of the members and the board was that IPE should develop its electronic capability, enabling it to go electronic sometime in the future," Ward recounted.

Following a review of IPE's existing technological capabilities and potential future requirements, the company's members reached the conclusion that it was not, in fact, a technology company, and a third party was sought out, Ward explained.

IPE then waded through a list of 50 electronic platforms -- a relatively "short list" for that period in time, Ward recalled. The list of 50 was narrowed to 10, and then to 2: ICE and London-based electronic exchange London International Financial Futures & Options Exchange (LIFFE).

While LIFFE wished only to provide IPE with its technology, ICE went a step further with a merger offer.

Following that, conversations between IPE and ICE "just clicked," Ward said. Through an agreement with ICE, IPE determined that it would gain both technology and a foothold into the OTC market.

"It's not often you get such a good fit between two companies, where the glove really does fit the hand and you don't have to chop off a few fingers," Ward said. "ICE is not only a technology company, they're a good technology company."

Other key strategic advantages gained through the merger, Ward noted, include placing OTC and futures trading on the same platform, with a single point of access for IPE's customers.

In mid-June, IPE's shareholders had tendered their shares to ICE, therefore clearing the way for the two firms to move toward completing merger proceedings.

Upcoming challenges
In light of the complementary nature of IPE and ICE, the new firm faces numerous hurdles as well. IPE -- which has been in operation for 20 years and has a customer base of more than 300 companies -- faces a challenge with taking its operations fully electronic.

Engaging its customers in the transition process is not going to be quick or cheap, Ward said. "It's probably going to cost us about $10 million over the next 12 months," he said, and will involve many stages.

Another challenge will be to exploit the synergies between the IPE futures and the ICE OTC.

IPE's third challenge -- although not related directly to its deal with ICE -- is to ensure that the Brent crude market remains the market of choice for its customers.

This is of particular importance to IPE since the announcement earlier this month that the New York Mercantile Exchange Inc. will launch two options contracts based on the Brent crude oil futures contract. On Sept. 6, NYMEX will launch a Brent options contract and on Sept. 7, it will start a Brent/West Texas Intermediate spread options contract.

"We've built up the Brent market business over the past 13 years," Ward noted. "What we need to do going forward is listen even more closely to our trading community to make sure that the IPE Brent is their market of choice when they come to the IPE to trade Brent."

Regarding NYMEX's launching of the Brent contracts, Ward said, "I'm not surprised that they've done it, and I'm not overly concerned, but I don't want that to sound like complacency. The challenge for us is to welcome competition -- I think competition is good for business. I don't think actually splitting liquidity is good for business, though."