Energy & Environmental Markets Advisory Committee

Panel II

February 26, 2015
Why the Need for Change?

› Since 2012, all of ICE’s U.S. energy contracts have traded as futures

› Any disruptions will only harm End-Users 

 Markets composed of energy companies

‒ 70-80% of OI held by commercial companies 

 Model convergence

‒ Futures and cash converge within less than one penny

› Rules must accommodate unique nature of energy contracts

 Single and all-month limits will squeeze liquidity and harm hedging out the 

curve

 Deliverable supply must be updated and realistic

 Longstanding commercial hedging practices are critical

‒ Cross Commodity 

‒ Unfixed Price Purchase and Sales

‒ Anticipatory

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Market Regulation’s Process

To ensure markets operate efficiently:

› We take in A LOT of data: 

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 Audit Trail

 Position Data

 Cash Market Fundamentals

 Weather Reports

 News Feeds

 Social Media: Twitter, Message Boards

 Trade practice/position limit 

violations

 Futures/Cash price divergence

 Volume Alerts

 Price Alerts

 Liquidity Drainage

› Use data to identify market stress indicators

› Understand how participants operate and utilize the markets
Single and All-Month Accountability vs Limits

› Intended to manage positions or concentrations of positions out the curve

 Never intended to be real-time protections

 Analytical based outcomes require the consideration of multiple factors

› Intended purpose can be accomplished with accountability levels

 Exchange can take no immediate action but maintain dialogue

 Require that participant not increase position further

 Require that participant reduce position

› Existing accountability regime works

 Considers multiple factors that cumulatively determine if a position should 

continue to be carried – 10, 2.5 formula is not the answer

 Must be applied proactively

 Must have an open dialogue with the participant

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Deliverable Supply Estimates

› Spot month limits must be based off of current and realistic estimates 

of deliverable supply 

› A one size fits approach does not work

 Energy markets greatly differ from agricultural futures and the 

same principles should not be applied

› Natural gas and Power infrastructure is interconnected by design, 

deliverable supply must take this into consideration

› Natural Gas estimates should be based on the volume of gas that 

can be transported to fulfil demand

› Power estimates must recognize the transmission of generation from 

other areas

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Deliverable Supply Estimates

› Hypothetical Example

 Supply of 1,200 is greater than the pipeline capacity of 600

 Demand of 650 on heating days is greater than capacity

 On non-heating days the excess capacity can be used to store gas for future sale 

when demand spikes otherwise the pipeline can operate at less than full capacity

 Regardless of the season or conditions, pipeline capacity represents the quantity 

that is readily available

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Bona Fide Hedges

› Bona Fide Hedging definition is too narrow

› Fails to recognize longstanding commercial practices as legitimate hedges

 Cross commodity

 Anticipatory

 Unfixed price

› Threatens prudent risk management decisions and will harm liquidity

› Exchanges should be permitted to grant these exemptions based on thorough review

 Demonstration that the risk reduces commercial risk

 The exemption level is economically equivalent to the risk

 The exemption level is appropriate for the participant and the market

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Forward-Looking Statement and Legends

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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

This presentation may contain “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Statements regarding ICE’s business that are not historical facts are forward-looking statements that involve risks, uncertainties and assumptions that are

difficult to predict. Although we believe the expectations reflected in these forward-looking statements are reasonable, these statements are not guarantees of

future results, performance, levels of activity or achievements, and actual results may differ materially from what is expressed or implied in any forward-looking

statement. The factors that might affect our performance include, but are not limited to: our business environment and industry trends; general economic

conditions and conditions in global financial markets; volatility in commodity prices, equity prices, and price volatility of financial benchmarks and instruments

such as interest rates, credit spreads, equity indexes and foreign exchange rates; changes in domestic and foreign laws, regulations, rules or government

policy with respect to financial markets, or our businesses generally, including changes, increased regulatory scrutiny or enforcement actions; the success of

our clearing houses and our ability to minimize the risks associated with operating multiple clearing houses in multiple jurisdictions; the performance and

reliability of our technology and the technology of our third party service providers; our ability to identify and effectively pursue acquisitions and strategic

alliances and successfully integrate the companies we acquire; increasing competition and consolidation in our industry; our ability to continue to realize the

synergies and benefits of the NYSE acquisition within the expected time frame, and continue to integrate NYSE’s operations with our business; our ability to

keep pace with rapid technological developments and to ensure that the technology we utilize is not vulnerable to security risks, hacking and cyber-attacks; the

soundness of our electronic platform and disaster recovery system technologies; the accuracy of our cost estimates and expectations; our belief that cash flows

from operations will be sufficient to service our current levels of debt and fund our working capital needs and capital expenditures for the foreseeable future; our

ability, on a timely and cost-effective basis, to offer additional products and services, leverage our risk management capabilities and enhance our technology;

our ability to maintain existing market participants and attract new ones; our ability to protect our intellectual property rights, including the costs associated with

such protection, and our ability to operate our business without violating the intellectual property rights of others; our ability to identify trends and adjust our

business to respond to such trends; and potential adverse results of litigation and regulatory actions and proceedings. For a discussion of such risks and

uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see ICE’s Securities and Exchange

Commission (SEC) filings, including, but not limited to ICE’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC on

February 5, 2015 (the “Form 10-K”). These filings are available in the Investors & Media section of our website. We caution you not to place undue reliance on

these forward-looking statements. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation

to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the

occurrence of an unanticipated event. New factors emerge from time to time, and it is not possible for management to predict all factors that may affect our

business and prospects. Further, management cannot assess the impact of each factor on the business or the extent to which any factor, or combination of

factors, may cause actual results to differ materially from those contained in any forward-looking statements.