Attempting to take some of the risk out of long-dated trading so companies don’t lose the shirt off their back from being on the wrong side of the market, IntercontinentalExchange Inc. (ICE) announced last week that it has recently expanded its ICE Data Market Price Validation (MPV) service to include more products and data points. Also last week, ICE signed a definitive agreement to acquire Houston-based ChemConnect Inc.’s commodity trading business.

The ICE Data MPV service provides benchmarking and validation of “nonobservable” market prices for long-dated over-the-counter (OTC) swaps, options and exotic derivative products, ranging from five to 20 years. During the May 2007 month-end valuation, the MPV service saw record participation from 34 of the world’s leading commodity and energy trading firms including investment banks, utilities and hedge funds, the electronic energy marketplace and soft commodity exchange said.

“The ICE Data MPV service helps our global subscriber base fulfill critical risk management requirements by providing independent, external validation of market prices, where traditionally companies had to rely on stand-alone, independent pricing models that can result in a material mispricing of a portfolio,” said Martin Wadhwani, managing director of ICE Data. “The pricing of complex derivatives can be challenging, especially for products where inherent volatility can result in rapid changes in value at risk, or in niche markets with limited liquidity or access to independent valuations. In response to customer demand, we are continuing to add new features to this vital tool for monitoring risk and valuing derivative portfolios.”

Being blind-sided by unexpected energy market swings is nothing new. From the hefty losses last year that collapsed hedge funds MotherRock and Amaranth (see NGI, Aug. 7, 2006; Sept. 25, 2006; Oct. 2, 2006), to the Bank of Montreal’s difficulties this spring in wrong-way options deals (see NGI, April 30; May 21), companies have recently been finding out that their trading books are not adequately risk managed.

In response to the increasing demand for independent verification of portfolio valuations, ICE Data said it recently enhanced the monthly MPV service by adding a twice-monthly valuation service and by expanding coverage to include an extensive list of swaptions, crack and spark spread options. ICE Data MPV participant companies submit their forward curve and option prices on a monthly basis for more than 200 widely held global contracts such as natural gas, crude oil and refined oil products, electric power, ethanol, corn, sugar, base and precious metals, freight, natural gas liquids and commodity index contracts.

The exchange said ICE Data then follows an audit process and averages these submissions to create consensus forward curves and option values that are provided to MPV participants. Participants then use these consensus forward curve and option values to verify internal valuations and mark their month-end portfolios in accordance with the Financial Accounting Standards Board and International Accounting Standards recommendations with respect to the treatment and valuation of derivatives.

In continuing to display its voracious appetite for acquisitions and mergers, ICE also last week entered into a definitive agreement to acquire Houston-based ChemConnect Inc.’s commodity trading business.

ChemConnect is the leading electronic marketplace for the $150 billion U.S. natural gas liquids (NGL) and chemicals markets. ChemConnect has established a 10-year track record in expanding the markets for such products and providing hedging opportunities for its market participants through specialized products and services.

ChemConnect’s NGL markets include products such as propane and ethane, while its chemicals business includes commodities such as ethylene, propylene and benzene. Under the terms of the deal, ChemConnect will transition its electronic markets to the ICE electronic trading platform where the companies claim that both ICE and ChemConnect customers will benefit from a more comprehensive product offering in a single marketplace. NGL prices are correlated with natural gas and crude oil prices, which ICE said makes these products a natural extension to those products currently offered on the ICE platform.

“This strategic and accretive acquisition builds on ICE’s commitment to serving the physical OTC energy markets by increasing access and transparency through electronic trading,” said Charles A. Vice, ICE’s president. “We are pleased to welcome the ChemConnect team and their diverse customer base. The acquisition of the leading electronic physical NGL and chemicals trading platform is an excellent fit with our leadership in the U.S. physical gas and power markets, as well as our upcoming launch of the Platts Window on ICE for the global physical oil markets.”

ICE said it expects to transition ChemConnect’s products and customers to the ICE platform, as well as transition the ChemConnect data business to ICE Data during the same period. The all-cash transaction is expected to be completed by the middle of July, and the terms of the transaction have not been disclosed.

ICE has definitely been busy on the acquisition front. After completing its acquisition of the New York Board of Trade in January (see NGI, Jan. 15), the exchange went on to complete a multi-tiered alliance with NGX and a purchase and leaseback of Intelligence Press Inc.’s NGI indexes (see NGI, April 2; April 16). ICE is also competing against the Chicago Mercantile Exchange for wooing rights of the Chicago Board of Trade (see NGI, March 26; June 4).

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