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ICE, Nymex Post Record First Quarter Earnings -- Again

On the backs of record trading volumes, IntercontinentalExchange (ICE) and the New York Mercantile Exchange (Nymex) continued their battle for market exchange supremacy as both posted record 1Q2008 earnings. ICE posted consolidated net income for 1Q2008 of $92.3 million, a 66% increase compared to $55.6 million during 1Q2007, while Nymex's posted net income for 1Q2008 increased 27% to a record $71.2 million, compared to $56.2 million for the same period of 2007. Both companies also posted record 1Q2007 earnings (see NGI, May 7, 2007).

ICE's diluted earnings per share (EPS) for the quarter were $1.29, an increase of 61% over the prior year's first quarter of 80 cents. Nymex's diluted EPS were 75 cents, based on 95 million shares outstanding, compared to 59 cents, based on 94.8 million shares outstanding, for 1Q2007.

ICE, which operates global exchanges and over-the-counter (OTC) markets, said consolidated revenues in the first quarter increased 64% to a record $207.2 million, from $126.6 million in the first quarter of 2007, marking the company's ninth consecutive quarter of record revenues.

ICE's futures exchanges achieved record volume in the first quarter of 2008, increasing 39% to 62.5 million contracts. During the quarter, average daily volume (ADV) exceeded one million contracts for the first time: ADV for ICE Futures Europe was 616,150 contracts; ADV for ICE Futures U.S. was 370,372 contracts; and ADV for ICE Futures Canada was 18,190 contracts. First quarter 2008 transaction revenues in the global OTC segment increased 69% to $80 million, compared to $47.3 million in the same period in 2007. Average daily commissions for ICE's global OTC segment during the first quarter of 2008 rose 70% to a record $1,280,223. ICE Futures U.S., formerly the New York Board of Trade, was acquired on Jan. 12, 2007 (see NGI, Jan. 15, 2007; Sept. 18, 2006) and ICE Futures Canada, formerly the Winnipeg Commodity Exchange, was acquired on Aug. 27, 2007.

"ICE's record first quarter is a result of our strategy to serve the rising demand for commodity price transparency, which enables efficient markets, hedging and risk management," said ICE CEO Jeffrey C. Sprecher. "We have numerous initiatives under way to support growth across new and existing asset classes. Our organic growth remains strong despite the broader credit market issues over the past three quarters, and we have experienced record transaction volume in our markets this year. We look forward to the launch of our European clearing house, which will further enhance credit intermediation in ICE's markets and beyond."

Sprecher added that the company has been very focused on entering the equity index business and facilitating the transition of the Russell Index futures to ICE. "Usage of Russell's U.S. indexes is at an all-time high, demonstrating the strong value in the Russell franchise and illustrating its potential impact to our business as exclusive trading of Russell equity futures products begins on ICE this fall," he said. "With the fastest matching engine in the futures markets today, we are continuing to offer additional user benefits through our extensive and ongoing technology enhancements. Finally, we continue to evaluate a range of M&A opportunities to expand our position as one of the most diversified and global derivatives markets in the world."

Nymex said its strong 1Q2008 was partially a result of increased transaction volumes and higher fees. Clearing and transaction fees rose 30% for 1Q2008 to $179.1 million compared to $138.2 million for the year ago period. The exchange said market data fees increased 13% during 1Q2008 to $26.2 million versus $23.1 million for 1Q2007. Nymex's average daily volume was a record 1.871 million contracts during the first quarter 2008, a 24% increase over the first quarter of 2007. Nymex electronic trading volume on Chicago Mercantile Exchange's (CME) Globex platform averaged 814,306 contracts per day and represented a 36% increase over 1Q2007 electronic trading volume. With the migration to electronic trading, Nymex floor-traded energy futures and options averaged 236,894 contracts a day for the first quarter of 2008, down significantly from the 329,524 contracts per day for the same period of 2007. Average daily volume on Nymex ClearPort was 462,544 contracts in the first quarter of 2008, as compared to 373,357 contracts in the same period of 2007.

"The first quarter of 2008 was significant for Nymex as we have continued to strengthen our competitive position and marketplace offerings, while also improving our financial performance," said Richard Schaeffer, Nymex chairman. "Our strong financial performance is the result of growth trends in volume, strength in average rate per contract fees, and disciplined expense management. The credit risk mitigation, price discovery and risk management that our trading and clearing venues provide market participants are even more valued in the current challenging economic environment, and contribute to the growing participation in our markets and continuing strength of our business."

After dancing for two months over the details and the structure of the deal (see NGI, Feb. 4), CME in March agreed to acquire Nymex for $9.5 billion, which is approximately $1.5 billion less than the deal that was being pondered back in late January (see NGI, March 24).

"The decision to combine with CME, which we announced on March 17, 2008, allows us to take our business and growth to a much higher level and create value for our customers and shareholders," said Schaeffer. "We believe this combination serves the best interests of Nymex members and shareholders and all those who participate in the global commodities and derivatives markets. Other recent initiatives, such as the launch of environmental contracts for The Green Exchange venture, as well as our historic alliance with LCH.Clearnet to offer futures and options contracts cleared in Europe, have strengthened our market position globally, as well as across asset classes."

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