Last updated: February 6, 2013 11:05 pm

ICE attacks ‘absurd’ US market practices

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IntercontinentalExchange hopes to use its planned $8.2bn purchase of NYSE Euronext to reform some of the “patently absurd” practices on US equity markets, chief executive Jeff Sprecher said on Wednesday.

Mr Sprecher said the “pendulum has swung too far” in the wake of some of the reforms that have reshaped US equity markets in recent years.

Critics say legislation has contributed to a growing catalogue of missteps in US equities trading, from the flash crash of 2010, errant algorithms at Knight Capital, and glitches involving the listing of Facebook, one of the world’s highest-profile companies.

“I’m hoping that attention [surrounding the transaction] will increase the pulpit that both we and the New York Stock Exchange have to make comments about how the market structure can be improved,” he said on an analyst call as the company reported results above Wall Street’s expectations.

“The market itself needs to come up with solutions that it can take back to market participants and to regulators in a collaborative way,” said Mr Sprecher. Some practices, such as rebates offered to market participants by some trading venues, were “patently absurd” and “destructive” to shareholders.

He made the comments as ICE reported a rise in fourth-quarter net income as it escaped the worst of the effects of weak global trading activity.

The securities industry – including exchange operators, which make commissions on trades – was hit by a fall in trading activity last year. Amid the downturn, ICE has managed the slowdown better than rivals.

While ICE reported a slight drop in average daily volume in the quarter that ended in December, its full-year trading levels grew nearly 10 per cent to 2.72m led by double-digit growth in its Brent and energy products. That compares with a 15 per cent drop in average daily volumes at rival CME Group.

Overall, ICE reported fourth-quarter diluted earnings of $129.5m, or $1.76 a share, compared with $126.8m, or $1.73 a share, during the same period last year. Excluding transaction costs such as those for the NYSE deal, the company reported earnings of $135.1m, or $1.84 a share.

Revenues fell 1 per cent year on year to $323m. Wall Street analysts had forecast earnings of $1.75 cents a share on revenues of $322.1m.

On Tuesday, as it announced fourth-quarter results, NYSE said it would cut more costs ahead of the planned sale, which should close in the second half of the year. The deal will create a rival to CME Group and Deutsche Börse as one of the world’s largest derivatives exchanges by contracts traded.

NYSE has also agreed to move clearing of contracts traded on its Liffe derivatives exchange to ICE’s London-based clearing house, rather than build its own operations.

“Jeff Sprecher is a credible voice in the exchange market place and will bring a fresh look to equity market structure,” said Rich Repetto, analyst at Sandler O’Neill.

For equity exchanges, the lower volumes come as the percentage of trading activity at private off-exchange venues rises.

ICE shares rose 1.2 per cent to $145.22 in New York on Wednesday.

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