In an attempt to broaden the horizons of its over-the-counter (“OTC”) products offering, last Friday IntercontinentalExchange, Inc. (ICE - Analyst Report) announced its decision to launch a brand new liquefied natural gas (“LNG”) cleared swap contract. It is to be based on Platts, a subsidiary of The McGraw-Hill Companies , renowned for providing information related to global energy, petrochemicals and metals.
Platts, the daily assessor for the Japan/Korea Marker (“JKM”), was launched in 2009. It is programmed to reflect the total amount of LNG delivered in the Japanese and South Korean market regularly. Japan/Korea Marker LNG swap not only adds to IntercontinentalExchange’s 40 Asia-specific energy swaps but also provides the company with a significant point of reference for pricing trends in the Southeastern region.
The contract is expected to be settled in cash using the American dollar on a monthly basis. This new cleared swap contract initiated by IntercontinentalExchange will be made accessible from August this year and will be subject to the approval of the concerned regulatory bodies.
On a separate development, IntercontinentalExchange has revealed its interest in revising the specifications of the heating oil contracts starting from May next year and list extra contracts by December 2014. This move comes just after a similar action undertaken by its closest competitor CME Group (CME - Analyst Report) beginning this year.
Pursuing the stiff competition that exists between the two companies, CME Group entered into a strategic alliance with Japan's foremost provider of energy price and information services – RIM Intelligence – in order to develop clearing services for OTC risk management products used by the Japanese energy industry.
The company is strategizing to attain a strong foothold in the emerging markets and has achieved a competitive leverage on demonstrating immense growth potential in its futures and OTC market. The company is well positioned to drive its top and bottom-line growth. Its volumes and margin are expected to grow as more futures and OTC contracts are now exchange-traded and cleared.
We retain our long term Neutral recommendation on IntercontinentalExchange. It also has a quantitative Zacks #3 Rank that translates into a short-term Hold rating.