TESTIMONY OF JEFFREY C. SPRECHER

CHAIRMAN & CHIEF EXECUTIVE OFFICER, 

INTERCONTINENTALEXCHANGE, INC. 

BEFORE THE COMMODITY FUTURES TRADING COMMISSION

JULY 28, 2009

Chairman Gensler and Commissioners, I am Jeff Sprecher, Chairman and Chief 

Executive Officer of IntercontinentalExchange, Inc., or "ICE." I appreciate the 

opportunity to appear before you today to discuss the issue of position limits and hedge 

exemptions in energy derivatives markets. As a global operator of both regulated energy 

futures exchanges and electronic over-the-counter energy markets, ICE firmly believes in 

the proper regulation of markets to ensure that market users, as well as the broader 

public, have confidence in the price formation process that takes place in our markets –

this is the very heart of the exchange model.

Prior to discussing the substance of our recommendations, however, we must 

respectfully offer a note of caution. During times that unpopular price signals are being 

sent by markets, it is often tempting for policy makers to take pro-active steps to address 

what they perceive to be structural problems in the market. While well intentioned, these 

measures often fail to achieve their desired objectives or, worse yet, lead to unintended 

consequences such as increased price volatility and distortion of important price signals

that would otherwise be discovered in properly operating markets. If steps taken by 

regulators are not carefully tailored to address actual problems, they will ultimately leave 

our country, its businesses, and American consumers alike in a worse position in the long 

run, unable to prepare today for what everyone – politicians, businesses, and consumers 

– agrees will be a difficult energy future. In this regard, we note that no quantitative 

study has shown that speculation in futures markets was the cause of increased energy 

commodity prices in the past year – indeed, it is telling that commodities for which there 

is no active futures market experienced similar price increases as those for which there 

are active futures markets. We offer additional support for these facts and address other 

issues that third parties have raised about ICE’s markets in the Annexes attached hereto. 

It is also critically important to note the central truth that deeper, more liquid markets 

with broad participation serve as better price discovery venues. 

 To consider the issues before the Commission today, it is also important to 

consider the historic role of position limits and accountability levels in futures markets. 

These two tools are different in recognition of the fundamental difference between 

futures markets – where market participants speculate on what the future price of a 

commodity may be – and spot markets, where physical commodities are actually

procured and purchased and into which near term futures market contracts should 

converge. In futures markets, position limits have been implemented in the prompt 
2

month (which converges into the spot market price) to prevent market corners and 

delivery squeezes in the final days of trading, when physically delivered contracts held to 

expiry “go to delivery.” In contrast, accountability levels have been implemented in 

future months to alert the exchange to the presence of a market participant holding 

positions large enough to either present an opportunity for market manipulation, or, as 

contracts roll toward expiry, to present the risk of a corner or delivery squeeze. These 

two tools – a prompt month limit and an accountability level in future months -- are set at 

different levels and exemptions are granted in different circumstances in recognition of 

the axiomatic fact that the farther into the future an expression of price is made, the 

less connected or relevant it is to the current spot market price and the more tenuous 

and speculative that future expression of price is. To test this proposition, simply attempt 

to predict what the future price of oil – or any commodity, security or financial 

instrument – will be in 2017, the longest dated month in ICE’s contract markets, while at 

the same time considering the countless events, large and small, that will happen between 

now and then that will ultimately determine what the price of oil will be in 2017 when the 

future arrives.

Finally, it is important to note the beneficial role that competition has played in 

energy markets. While liquidity is concentrated at a single exchange for most futures 

products, energy markets are an exception, partly in recognition of the global nature of 

energy commodity markets. Today, healthy competition exists among domestic and 

foreign futures exchanges, OTC exempt commercial markets, and OTC voice brokers. 

This competition has brought many benefits to commercial users of the energy markets 

and the public in general, including the early adoption of electronic trading and the 

tighter bid/ask spreads in markets that resulted there from; the early adoption of 

clearing for OTC derivatives in energy markets in 2002 (a fact that should not be 

overlooked given recent financial market events and the Treasury’s recent proposal to 

require clearing of all standardized OTC derivatives); and significant product innovation

that has allowed commercial users to more accurately hedge their unique market risk.

Against this backdrop, ICE offers the following recommendations to the 

Commission regarding the application of position limits, accountability levels, and hedge 

exemptions in energy derivatives markets:

1. That any aggregate system of position limits, accountability levels and hedge 

exemptions should be set and administered by the CFTC;

2. That any position limits and accountability levels should be determined by the 

CFTC using market neutral and transparent methodologies and in a manner to 

preserve competition;
3

3. That financially settled contracts and physically deliverable contracts should 

be treated differently in any revised regime; and

4. That the CFTC should maintain the distinction between expiration month 

position limits and future month accountability levels

Position Limits, Accountability Levels and Hedge Exemptions Should Be Set 

and Administered by the CFTC

As the Commission is aware, ICE Futures Europe presently complies with the 

same position limits and accountability levels as domestic exchanges for its WTI crude 

oil contract and other contracts that are linked to the final settlement price of domestic 

exchanges – in addition to applying its own position management regime under U.K. 

Financial Service Authority (FSA) regulation. Further, legislation passed under the 2008 

Farm Bill codified position limit and accountability requirements for significant price 

discovery contracts, or SPDC’s, traded on ICE’s OTC platform. As of last week, ICE’s 

largest OTC contract – the Henry Hub natural gas swap – was deemed to be an SPDC. 

Recognizing the Commission’s suggestions that position and accountability levels 

should be applied in the aggregate across trading venues and markets to avoid 

“duplication of limits and exemptions,” ICE believes that the CFTC is the appropriate 

authority to set and administer position limits, accountability levels and hedge 

exemptions for U.S. energy futures, any linked foreign contracts, and SPDC’s. Only the 

CFTC has the placement to view a trader’s positions across all venues to observe true 

position size – no single exchange or venue is in such a position.

In addition, given the positive benefits of competition that currently exists in the 

markets, it would be important for a neutral body to set and administer such an aggregate 

regime in order to satisfy the CFTC’s statutory mandate under the Commodity Exchange 

Act to “promote fair competition among boards of trade, other markets and market 

participants markets.”1 Currently, pursuant to the CFTC’s significant price discovery 

rules and ICE Futures Europe’s no action letter, ICE is beholden to position limits and 

hedge exemptions determined by its competitor, the CME Group, for certain of its U.S. 

products. Having one exchange administer an aggregate position limit scheme across its 

market and competing venues is rife with potential conflicts of interest. Further, the 

current process for determining position limits and hedge exemptions is completely 

opaque to ICE, to market participants and to the public in general, creating uncertainty 

about market integrity. This would be addressed if the CFTC administered the position 

limit and hedge exemption regimes as a neutral party. 

 1

 7 U.S.C. § 5(b) (2008).
4

Aggregate Position Limits & Accountability Levels Should be Determined by 

the CFTC Using Market Neutral Methodologies and In a Manner to Preserve 

Competition

The current position limit regimes, both CFTC-administered and exchangeadministered, are obsolete. The regime has not been updated for many years, even though 

the size of the futures markets has changed considerably. It may well be, that the large 

number of hedge exemptions that have reportedly been granted in the energy markets 

stem from maintaining outdated position limits that were established in a different era. 

To revamp the current system into an effective aggregate regime, the CFTC 

should re-examine position limits and accountability levels based upon the underlying 

market (as opposed to an individual exchange’s market) and set such limits and levels for 

traders across all trading venues. Importantly, the position limit must be exchange 

agnostic if competition is to be preserved; market participants should be able to carry the 

same aggregate position on any recognized venue, as long as the position does not exceed 

the CFTC-determined aggregate limit. Importantly, setting position limits as a 

percentage of an exchange’s open interest would be contrary to the CFTC’s statutory 

mandate to promote competition among exchanges and seek to regulate the futures 

markets by the least anticompetitive means available. Imposing smaller positions for 

smaller markets or applying a “percentage of market” test for each individual exchange 

would only work to retard competition by inhibiting the development of liquidity in a 

competing market and locking in the relative market share of existing exchanges. New 

entrants to the market would never be able to attract major market participants without

liquidity. Further, setting position limits as a percentage of open interest is unworkable, 

given that open interest fluctuates, sometimes greatly, from day to day.

Aggregate position limits should be set by the CFTC in a transparent fashion and 

updated regularly. Position limits should be set according to market size to prevent 

manipulation and delivery disruptions, not to influence commodity price levels. In 

determining position limits or accountability levels, the CFTC should consider the entire 

size of the energy market in question – both exchange and OTC. While the feasibility or 

necessity of OTC position limits is not the subject of this hearing, it is clear that the 

Commission has the authority to collect data on the OTC markets. Failing to accurately 

assess market size in setting position limits, accountability levels and appropriate 

exemptions will likely result in artificially low limits, creating barriers to a wellfunctioning, centrally cleared and regulated derivatives market and keeping positions in 

the opaque OTC markets. 

While the CFTC has the ability to limit positions on its regulated markets, it does 

not have the ability to limit the demand for hedging that comes from a wide range of 

commercial firms globally. Firms and their swaps dealers who lack the ability to hedge 
5

risk exposures on exchanges and transparent trading venues will be forced to take their 

business to the bilateral markets, increasing systemic risk and reducing market 

transparency. Alternatively, commercial entities may not be able to effectively hedge risk 

and may simply be forced to raise prices to consumers to compensate for input or 

production prices they cannot effectively manage. Neither of these outcomes is desirable. 

Financially Settled Contracts and Physically Deliverable Contracts Should be 

Treated Differently in a Revised Position Limit Regime

In determining final month position limits, the CFTC should delineate between 

financially settled and physically deliverable contracts. Currently, the CFTC is 

encouraging exchanges to adopt hard position limits for financially settled contracts that 

are equal to the position limits for physically deliverable contracts. Any position limit 

regime should closely examine this practice, as market participants use the physical and 

financial markets for different purposes. Imposing limits on cash-settled products is 

problematic for those trying to hedge the settlement price and may create a convergence 

problem. The energy market created an OTC financially settled WTI swap contract, 

specifically to allow hedgers, who reference CME’s WTI futures settlement price in their 

physical contracts, to hedge the expiration price of the WTI futures contract. Without 

such a mechanism, it is impossible to hedge the final futures settlement price, as holders 

of the futures contract receive physical oil at expiration – not dollars. ICE recognized the 

need for hedging CME’s price and listed this financial contract on its energy futures 

exchange. The CME and a number of other exchanges and trading platforms have 

followed suit and such contract has found widespread adoption among commercial 

market participants. 

If the Commission’s regulatory concern is arbitrage between the physical and 

financial contracts, then a simple solution may be to allow large positions to be held in 

the financially-settled contract to allow perfect hedging of the final settlement price, but 

prohibit holders of such large positions from trading in the physically-settled futures 

contract market during the crucial settlement period, when physical players, with 

positions below the hard position limits in the final trading days, would determine the 

expiration settlement price. Such a rule would promote contract convergence and 

eliminate the need for the significant number of hedge exemptions that exist in the energy 

futures market. 

Maintenance of the Distinction Between Expiration Month Position Limits & 

Future Month Accountability Levels 

As noted in the introductory section of this testimony, expiry month position 

limits and accountability levels are different in recognition of the fundamental difference 

between futures markets and spot markets into which near term futures market contracts 
6

should converge, together with the axiomatic fact that the farther into the future an 

expression of price is made, the less connected or relevant it is to the current spot market 

price. These facts are extremely important to consider because while expiration month 

hard position limits serve a very important purpose, blindly applying existing expiry 

month limits across all contract months – in an effort to dampen the overall level of 

speculative activity in a market could have a dramatic and adverse effect on the proper 

operation of markets, including (i) draining liquidity from markets (especially for 

contract months farther into the future), (ii) impeding price discovery and hedging of 

future price risk, and (iii) driving market participants off of exchanges and transparent 

trading platforms and into opaque portions of the market. None of these outcomes is 

desirable, all would run counter to the recently announced goals of the Treasury 

Department and the Commission to encourage clearing of OTC derivatives, and many 

could have serious systemic risk implications.

Under the current energy market regime, exchanges may set position 

accountability levels for energy contracts in future months outside of the expiry month. 

By contrast, for agricultural commodities, hard position limits apply in any month. The 

hard position limit scheme for agricultural commodities should not be seen as a panacea, 

as some key agricultural futures markets have been plagued with lack of convergence and 

lack of liquidity in distant contract months.

In many instances, commercial participants wish to hedge exposure far into the 

future, but artificially low hard position limits in the out-months may impact their ability 

to efficiently hedge such long dated risk due to the small number of speculators willing to 

undertake the risk of taking opposite positions so far into the future. Mandating 

agricultural market hard position limits across all future months could drain precious 

liquidity from the long-dated portions of the price curve, with speculators simply 

choosing to allocate their finite number of positions to the less risky nearby months of the 

price curve. This could have the perverse effect of not only harming the ability of 

commercials to engage in effective long term hedging (an activity that should be 

promoted), but could also result in spot market convergence problems as more 

speculative activity is allocated to the nearby expiry month. 

Another consideration is that the absolute size, the number of participants and the 

level of hedging activity fluctuate for markets constantly. For instance the position of a 

single market participant of one third of the total long open interest in a given market at 

one point in time may be a healthy contribution to the liquidity of the market and provide 

an opportunity for producers and merchants to enter into hedging transactions. However, 

with a different set of market factors, the same position may prompt the exchange and/or 

clearinghouse to request a reduction of this position. The current position accountability 

regime provides exchanges with the flexibility required for these market dynamics.
7

Furthermore, hard position limits across all months can inhibit proper price 

signals throughout the longer-dated portions of the price curve. The latter effect would 

be especially problematic in energy markets, where both traditional and alternative 

energy producers must finance large infrastructure projects years before they will 

produce supplies of energy based upon what the markets predict the future price of an 

energy commodity may be. Distortions in such price signals may result in the inability of 

such projects to secure financing, jeopardizing future physical supplies and causing 

further price disruptions. Such a result would be contrary to our country’s goal of 

increased energy independence and promotion of green energy and conservation.

For the foregoing reasons, ICE believes that the Commission should maintain the 

important distinction between prompt month hard position limits and future month 

accountability levels in connection with any changes the Commission decides to 

implement in energy markets. Should the Commission nevertheless decide to implement 

hard position limits across trading months, it is important for the Commission to 

appropriately adjust position limit levels from current expiration month levels to avoid 

adversely impacting liquidity in future contract months and raising the cost of hedging to 

end users of the markets. A sensible solution would be a gradual position limit that 

hardens as the contract moves towards expiration and delivery. This would preserve the 

ability of speculators who are willing to take on risk from commercial customers to make 

markets in the non-spot months. In addition, any changes to the position limit regime in 

the non-spot months should facilitate spread trading, which provides valuable liquidity to 

markets with minimal impact on absolute prices. 

Changes to Exchange Traded Commodity Funds May be Required

A recent phenomenon has been the emergence and growth of Exchange Traded 

Funds (“ETFs”) that invest in commodity futures. While such ETFs may represent a 

convenient mechanism for investors to access commodity futures markets, these funds 

regulated by the Securities and Exchange Commission with investor protection in mind, 

may not contemplate the ability of the CFTC, or CFTC regulated exchanges and trading 

platforms, to order down the size of an ETF’s position. Redemption mechanisms within 

the ETFs must facilitate the fund manager’s ability to redeem and retire its units or 

shares, so as to allow the size of the fund to be reduced. Without such mechanisms, 

commodity positions may simply be shifted between exchange traded and OTC venues, 

as ETF fund managers have little ability to stem the funds inflow from new investors. 

CFTC and SEC regulation and oversight should be coordinated with respect to 

commodity ETFs.
8

Conclusion 

In conclusion, in re-examining the current position limit, accountability level and 

hedge exemption regimes in energy markets, the Commission should strive to encourage 

competitive and liquid energy markets, while maintaining market integrity. The 

Commission should serve as the neutral agency to determine appropriate limits, grant 

hedge or risk exemptions and enforce these requirements across exchange venues. Given 

increased transparency, competition and hedging needs that have evolved within the 

energy markets, the CFTC has an opportunity via this hearing process to improve the 

current regime for position oversight. Finally, the Commission should continue to 

closely cooperate and confer with the SEC and other US regulators, as well as foreign 

regulators in an effort to rationalize regulation, prevent regulatory arbitrage and 

encourage the proper operation of markets for these important global commodities. 

Mr. Chairman, thank you for the opportunity to share our views with you. I would 

be happy to answer any questions you may have. 
9

Annex A: Noncommercial Market Participation

Exhibit 1: Noncommercial Long Participation in WTI Markets

Exhibit 2: Noncommercial Long Participation in Natural Gas Markets

Exhibit 3: Diverging Price Trends for Crude Oil and Natural Gas

Annex B: Market Fundamentals

Exhibits 4 & 5: World Crude Supply

Exhibit 6: Initial Jobless Claim Correlation to Crude Oil Prices

Exhibit 7: Currency Correlation to Crude Oil Prices

Annex C: Foreign Boards of Trade

Exhibit 8: ICE WTI Market Share

Exhibit 9: U.S./Foreign Exchange Acquisitions and Partnerships
10

Annex A: Noncommercial Market Participation

The most popular reason cited for high energy prices is “speculation” in the futures 

markets, for which evidence is inconclusive at best. While speculation, in the form of 

noncommercial futures market participation has been blamed for artificially elevating 

prices and volatility, the charts in Exhibits 1 & 2 below indicate otherwise. There is no 

correlation between the level of noncommercial participation, as classified by the CFTC 

Commitment of Traders Report, and the behavior of prices in the crude oil and natural 

gas futures markets.

Exhibit 1

West Texas Intermediate Crude Oil Futures Contract

Noncommercial Long Positions as a Percentage of Total Long Positions

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

%NonCommercialLong WTIPrice Brent Price
11

Exhibit 2

Henry Hub Natural Gas Futures Contract

Noncommercial Long Positions as a Percent of Total Long Positions

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

%NonCommercialLong Nat GasPrice

Furthermore, certain market participants, such as swaps dealers and index funds, have 

been labeled by many as sources of “excessive speculation”, and the drivers of 

“artificially high” crude oil prices and volatility. However, these same participants are 

equally active in the natural gas markets where prices are currently at a 7-year low, as 

shown in Exhibit 3. 
12

Exhibit 3

WTI Crude Price vs Henry Hub Natural Gas Price

(Index Date = 1/2/2009)

0

20

40

60

80

100

120

140

160

01/02/2009

01/26/2009

02/17/2009

03/10/200903/31/2009

04/22/2009

05/13/2009

06/04/2009

6/25/2009

7/17/2009

NMX WTI NMX Nat Gas

It is also important to note that there are many commodity markets, such as iron ore, for 

which there are no exchange-traded, regulated futures markets, no swaps dealers, or no 

index fund participation. Nonetheless, those off-exchange, non-cleared, OTC markets 

experience volatility and price moves that rival those in the regulated crude oil and 

natural gas futures markets.
13

Annex B: Market Fundamentals

Over the last several of years, the U.S. and global economies have experienced the 

periods of significant growth and rapid contraction. Throughout, market participants 

consistently paid close attention to weekly changes in crude oil inventory as reported by 

the U.S. Department of Energy. While decreases in crude oil demand are historically 

rare, they have recently been larger and more sustained due to the depth of the current 

global recession. However, as Exhibit 4 below reveals, the absolute levels of crude oil 

supply and demand nonetheless remained within a very small range throughout this 

period. Exhibit 5 is a magnified version of Exhibit 4. Due to the inelasticity of actual 

supply and demand as well as projected supply and demand, small imbalances generate 

large changes in price. This is referred to as “pricing at the margin” in economic terms, 

and it reflects that very narrow cushion of supply, particularly in light of significant and 

sustained OPEC cuts in supply over the past year.

Exhibit 4

World Crude Supply

0

10

20

30

40

50

60

70

80

90

100

Jan-06

Mar-06May-06

Jul-06

Sep-06

Nov-06

Jan-07

Mar-07

May-07

Jul-07

Sep-07

Nov-07

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

millions Bbls/Day

$0

$20

$40

$60

$80

$100

$120

$140

$160

Non OPEC Supply OPEC Supply Other Supply Crude Demand WTI Price
14

Exhibit 5

Some are of the view that oil prices do not reflect supply and demand fundamentals and

that there is a lower, “true” price at which oil should trade. However, commodities are 

not priced based on production cost, but on what the market will bear. No product sells 

below its long-run replacement cost for any length of time. There exists broad 

consensus that sustained price levels above $70 are required to make development of new 

sources of oil - as well as renewable technologies - cost effective. This is a key point in 

our energy policy debate. Low prices do not encourage or support the investment in 

alternative sources of energy, and artificially low prices only serve to camouflage the 

need for those investments, leading to disastrous results in the event that such price 

signals are not delivered in a timely manner. Finally, the many complex geopolitical 

factors at work in the global crude oil market, including a supply cartel, challenge the 

very idea of a “true” oil price. 

In addition to supply and demand fundamentals, economic fundamentals play a role in 

shaping the price of energy commodities. One such indicator that participants in virtually 

all markets whether commodity, equity, fixed income, etc. look to as a signal of 

economic health for the U.S. is the weekly initial jobless claims report. Exhibit 6 below 

shows that such data influences projections for future demand for energy resources.

World Crude Supply

82

83

84

85

86

87

88

89

Jan-06

Mar-06

May-06

Jul-06

Sep-06

Nov-06

Jan-07

Mar-07

May-07

Jul-07

Sep-07

Nov-07

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

millions Bbls/Day

$0

$20

$40

$60

$80

$100

$120

$140

$160

Non OPEC Supply OPEC Supply Other Supply Crude Demand WTI Price
15

Exhibit 6 

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

300

350

400

450

500

550

600

650

700

6

/

2

0

/

2

0

0

8

8

/

8

/

2

0

0

8

9

/

2

6

/

2

0

0

8

1

1

/

1

4

/

2

0

0

8

1

/

2

/

2

0

0

9

2

/

2

0

/

2

0

0

9

4

/

1

0

/

2

0

0

9

5

/

2

9

/

2

0

0

9

J

o

b

l

e

s

s

C

l

a

i

m

s

(

i

n

0

0

0

s

)

US Initial Jobless Claims vs WTI Price

USInitial Jobless Claims NYMEX WTI

Correlation = -0.81
16

Another closely watched indicator that unquestionably affects oil prices, is the value of 

the U.S. dollar. Global trade in crude oil is priced in U.S. dollars, regardless of the 

economy in which the transaction takes place. As such, crude oil futures can be an 

effective hedge against inflation and the falling value of the U.S. dollar. Exhibit 7 

indicates that the WTI crude oil price and the U.S. dollar are inversely correlated to a 

very high degree of statistical significance. This is based on pure economics. In fact, last 

year with the weakening of the dollar and its effect on the purchasing power of oil, 

several economies threatened to change the functional currency of oil to the Euro to 

prevent price swings. Currency is just another of the many issues impacting oil prices. 

Exhibit 7

WTI Price vs US Dollar Index

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

12/31/2007

02/13/2008

03/28/2008

05/09/2008

06/23/2008

08/05/2008

09/17/2008

10/29/200812/11/2008

01/27/200903/11/200904/23/200906/05/2009

NYMEX WTI

$60.00

$65.00

$70.00

$75.00

$80.00

$85.00

$90.00

$95.00

ICE USD Index

WTI Closing Price USD Index

Correlation = -0.91

Annex C: Foreign Boards of Trade

ICE acquired the International Petroleum Exchange (IPE) in 2001. At the time, the U.K. 

FSA-regulated IPE was a twenty-year-old floor-based exchange with no electronic 

trading system for its flagship Brent crude oil contract. In 2003, the ICE futures platform 

was deployed by the IPE and a small share of Brent volumes began trading electronically. 

As electronic volume continued to grow, as it had already done in most markets, floor 

hours were gradually curtailed, electronic volumes soared, and the IPE floor was 

ultimately closed in 2005.

For the first time, the global oil industry experienced the benefits of electronic trading, 

including improved bid/ask spreads in markets, price transparency, and efficiency while 
17

the IPE’s principal competitor, the New York Mercantile Exchange (Nymex), remained 

committed human intermediated open outcry trading. Open outcry markets lacked the 

visibility, access and transparency of screen-based markets, and were subject to slippage 

in execution price. As a result, Nymex customers increasingly asked the IPE to offer an 

electronically traded version of the WTI crude oil contract. In February 2006, the IPE, by 

then renamed “ICE Futures Europe”, launched a WTI futures contract that cash settles on 

the penultimate (next-to-last-day) Nymex settlement price. Volume grew rapidly, from 

an initial daily average of 41,858 lots to 169,653 lots in October of that year. Over that 

nine-month period, the price of WTI crude oil fell 10% from $65.37 per barrel to $58.73 

per barrel.

Eventually, Nymex was forced to migrate most of its WTI crude oil trading to the CME 

Globex electronic trading platform, with significant benefits to end market users, and was 

ultimately acquired by the CME in August 2008. ICE retained a stable, though small, 

share of the global WTI crude oil business. As measured by open positions (including 

futures and options on WTI) ICE’s market share has consistently hovered around 15%

regardless of the price of oil, as shown in Exhibit 8. 

Exhibit 8

Global Crude Oil - Open Interest

CME and ICE Market Shares

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan-08

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09May-09

Jun-09

Jul-09

$0

$20

$40

$60

$80

$100

$120

$140

$160

NYMEX WTI Share NYMEX Brent Share ICE WTI Share

ICE Brent Share WTI Price Brent Price

As ICE’s WTI contract settles on a penultimate basis, its share of ‘last day’ WTI open 

interest is, zero. This means that on the day that the WTI contract settles each month; 

there are no positions on ICE Futures Europe. Furthermore, 70% of positions (open 
18

interest) in ICE WTI are held by participants that fall within the Commission’s 

commercial category -- this is significantly higher than the 54% of positions held by 

commercials in the CME/Nymex WTI contract. Based on these facts, there is no 

evidence to support implications that the ICE WTI contract is a “safe harbor” for 

excessive speculation, or that speculators have moved en mass to U.K. markets in 

search of “regulatory arbitrage” or fictitious “London loopholes.”

The ICE WTI Futures contract was developed in conjunction with the needs of the 

physical hedging community and is attractive to a range of market participants because of 

its design. Some participants use the ICE platform for a variety of other business and 

prefer to use ICE as a ‘one stop shop’ for managing risk in futures and OTC energy 

markets across their global derivatives trading desks that often operate around the clock 

across Asia, Europe and the U.S. Some take advantage of margin offsets between ICE’s

Brent and WTI futures contracts and/or to hedge the risk of changes in the spread 

between the outright prices of Brent and WTI. Others prefer to trade the ICE WTI 

contract because, like the ICE Brent contract, it is cash-settled and therefore the most

effective mechanism available today for hedging the Nymex WTI settlement price in a 

cleared, transparent and regulated market.

Exchange marketplaces are increasingly global entities. As noted, ICE purchased ICE 

Futures Europe in 2001. Today, U.S. exchanges, excluding ICE, own stakes in more than 

a dozen foreign marketplaces based outside of the U.S. ranging from Qatar and Dubai to 

India, Korea and Brazil. These investments have been made as the competitiveness of 

the exchange landscape has expanded to a global scale and are based not only on 

technology, but products, liquidity and new markets in emerging economies. Exhibit 9 

below highlights the many global acquisitions and partnerships that have been forged by 

U.S. exchanges. It is important for the U.S. to implement policies that allow U.S. 

exchanges to help shape global markets.
19

Exhibit 9

Strategic Partnerships, Acquisitions, and Alliances

Date

Percent

Owned Cost of Stake

Location of

Partner

NASDAQ

Brut, LLC Sep-04 100% US

Borse Dubai Limited - OMX Feb-08 100% $4.3 billion UAE

Dubai International Financial Exchange Feb-08 33.33% $50 million UAE

Philadelphia Stock Exchange Jul-08 100% US

Boston Stock Exchange Aug-08 100% US

Nord Pool ASA Clearing, International Derivates, and Consulting Subsidiary Oct-08 100% Nordic Countries

International Derivatives Clearing Group (IDCG) Dec-08 81% US

European Multilateral Clearing Facility N.V. (EMCF) Jan-09 22% Europe

Agora-X Jun-05 20% US

NYSE

Archipelago Holdings Apr-05 100% US

National Stock Exchange of India Jan-07 5% $115 million India

Luxembourg Stock Exchange (executed master agreement) Mar-07 Europe

SecFinex Mar-07 51% Europe

Euronext NV Apr-07 100% Europe

Bovespa Oct-07 1% Brazil

BIDS (partnership) Oct-07 50% US

BlueNext Oct-07 60% Europe

Multi Commodity Exchange Feb-08 5% India

Abu Dhabi Securities Market (Cooperative Agreement) Mar-08 UAE

Doha Securities Jun-08 20%-25% $200-250 million Qatar

Memoranda of Understandings with the following exchanges:

Dalian Commodity Exchange China

Zhengzhou Commodity Exchange in China China

Tel AvivStock Exchange Israel

Philippine Stock Exchange Philippines

LCH Clearnet Ltd. (clearing relationship) Oct-08 Europe

American Stock Exchange Oct-08 100% US

Atos Euronext Market Aug-08 100% $255 million Europe

CME

BM&F 5% Brazil

ConfirmHub US

Dubai Mercantile Exchange (DME Futures Exclusivity) Feb-09 Dubai

NYMEX Holdings Aug-08 100% $7.7 billion US

Green Exchange (Joint Venture) Jun-05 US

Korea Exchange (List KOSPI 200 Futures) Jun-05 Korea

CBOT Holdings Jul-07 100% $11 billion US

Singapore Exchange Limited Oct-06 Singapore

Finally, many non-U.S. products are offered by U.S. exchanges. Certainly, the key 

commodities listed by ICE Futures U.S. are no longer primarily U.S. production or 

consumption markets. Countries such as Asia and India are drivers of our global 

economy, yet because of the U.S.’s effective market model, we maintain key trading 

markets. In British interest rates, a U.S. exchange is the primary market for Eurodollar 

rates. The U.S. should recognize its role in global markets and that the concept of “U.S. 

markets” has not existed for many years.