洲際交易所 (ICE) 2006 Q4 法說會逐字稿

Good day and welcome to this InterContinental Exchange fourth-quarter 2006 earning release conference call. As a reminder today's call is being recorded. At this time for opening remarks and introductions I would like to turn the conference over to Ms. Kelly Loeffler, Vice President and Investor Relations. Please go ahead.

Good morning. To obtain a copy of the company's fourth-quarter and full-year earnings release please visit the investor relations section of our website at theICE.com. We've included a slide show presentation in conjunction with our call today. These items will be archived and available for replay. Before we begin please be aware that our comments may contain forward-looking statements. These statements represent our current judgment and are subject to various risks, assumptions and uncertainties as outlined in the Company's filings with the SEC. Actual results may differ materially from those expressed or anticipated in any forward-looking statements.

I'd now like to turn the call over to Jeff Sprecher, ICE's Chairman and Chief Executive Officer.

Good morning and thank you for joining us. I'm pleased to report on the strong results ICE produced in 2006. Through innovation and execution we were able to produce sector leading metrics for revenue and net income growth as well as operating margins. The drivers that produced these results remain strong throughout the year and we reported record fourth-quarter results.

Our diluted earnings per share of $0.81 in the fourth-quarter were driven by a 131% increase in consolidated revenues that reached a new high of $95 million. Net income rose to $49 million, an increase of 230% over last year's fourth-quarter. For the year we were able to double our revenues and more than triple our net income. Our annual revenues grew 101% and net income increased 255% for the year.

ICE Futures for the ninth consecutive year established volume records. And our OTC commissions hit all time highs as well. As electronic trading continues to increase its share of the markets in which we operate and as new participants enter the commodity markets, we focus each day on customer service and leading the industry in innovation. The success of our new contract and the ability to grow and sustain our market share has demonstrated how we can leverage our fixed cost model to enhance our product offering to our global customer base.

Before I move on I would like to welcome our colleagues and new shareholders at the New York Board of Trade. Our transaction to acquire the NYBOT which was first announced in September closed on January 12. We have since distributed approximately 10.3 million shares of ICE common stock and $400 million in cash to former NYBOT members. This transaction brought together two of most global commodity markets with a diverse suite of energy, soft commodity, foreign exchange and equity indices as well as a centralized clearinghouse and leading edge technology. To that end I will discuss the initiatives that we are working on this year.

First the introduction of electronic trading at the NYBOT, second the evaluation of clearing alternatives and third, the integration of NYBOT's business as well as other opportunities for strategic partners and business combination and the U.S. and internationally. On our last earnings call in November we discussed the possibility of introducing electronic trading for soft commodity in the near future. We are pleased to say that the successful introduction took place last Friday. For the first time in NYBOT's 134-year history the benchmark contracts for sugar, cotton, coffee, cocoa and orange juice had begun to trade electronically. Chuck Vice will provide some insight into the hard work that went into this rapid introduction which was completed in literally a matter of weeks.

The remarkable progress compares to initiatives that took more than a year when we first began offering electronic trading in Crude markets in 2004. We are eager to make more progress on electronic trading and we soon plan to offer NYBOT suite of foreign exchange and index products on our electronic platforms.

Also at this time we are undertaking an extensive review of plans for clearing. We know that many of you are interested in the mechanics of how and when ICE will participate in its substantial and growing clear business. We are well aware of the opportunity at hand and in 2006 we estimate that our customers paid over $50 million to our third-party clearinghouse. However, our analysis is measured not just in dollars but in strategic value which we want to ensure that we carefully consider. We believe that there are several ways to leverage our industry relationships around the globe.

We've begun a dialog with regulators as well as market users and clearing members to ensure that our desired solution is flexible, practical and sound. We continue to support our previous expectations that we will begin to benefit from in-house clearing within 12 to 18 months following the closing of the transaction. We hope to do this in a relatively short amount of time but our primary goal is to arrive at the right solution whether or not it is the easiest path. We are proud of our proven track record in innovating creative approaches to our business. And our decision on this matter will be a solution around which we can continue to build global operations. As you can imagine we intend to announce our plans in the very near future.

Our third initiative is the integration of NYBOT and ICE while continuing to review other strategic alternatives. NYBOT's business has the opportunity to expand and we intend to provide the infrastructure and support to maximize this potential while we maintain financial discipline. We are completing a detailed transition plan over the next several weeks with implementation to begin this quarter. We plan to provide more information on our progress on our first-quarter earnings call.

Finally, we continue to dialog with potential acquisition and joint venture partners. We are selective in pursuing opportunities that we identify. First the potential opportunity should expand our footprint within the global risk management universe. Second, it should offer return on investment that both enhances our customer experience and drives value for shareholders. And third it should leverage the strength of each partner and produce synergy that we couldn't quickly achieve on our own. We are enthusiastic about the prospects on this front that could come to fruition this year.

While we pursue expansion we remain intensely focused on our core energy business and we continue to deliver very strong results. At ICE Futures average daily volume in the fourth quarter rose 145% to 441,000 contracts per day. Quarterly volume records were established in ICE Futures Brent, WTI and gas oil products. We maintained approximately a 50% market share in the global Crude oil futures market which compares to only a 36% market share in the beginning of 2006.

We continue to set volume records in our Brent and WTI and gas oil futures markets and in January we reached new volume and interest records in each of these contracts. Last week we marked the one year anniversary of trading in the ICE WTI Crude futures contract with more than 33 million contracts traded in just the first year. This product remains one of the most successful product launches in recent history.

In 2006 open interest in ICE's global Crude futures contracts grew more than 147% compared to open interest in Crude oil at the end of the prior year. In our over-the-counter businesses our average daily commissions rose 114% to $712,000 per day over the prior fourth quarter. In 2006 ICE introduced dozens of additional cleared contracts in our over-the-counter market which helped to add incremental volume and trading opportunities that supported our customers and enhanced our core products. These new products contributed more than $10 million in revenue during 2006 keeping in mind that many were introduced midyear.

With this in mind I'd like to turn our discussion over to our President and Chief Operating Officer, Chuck Vice.

Thank you, Jeff. Before I discuss progress with the NYBOT electronic trading initiative I want to briefly highlight coming enhancements to the ICE trading platform. As always we maintain an intense focus on system performance and capacity. We told you on our last call that in October we reduced average processing time to below 30 milliseconds, making the platform among the industry's fastest. On an average trading day over 6400 connections are made to our trading platform by market participants and thousands more subscribe to quote vendor fees.

This quarter we plan to make both hardware and software upgrades to our matching engine to further reduce response time while expanding system capacity. Another technology initiative that we began almost a year ago is a colocation service for our most demanding algorithmic traders. This very successful program facilitates location of a customer's proprietary servers within our data center to eliminate latency between the facility and the end-user. We will continue to court these types of customers who account for a growing percentage of our business.

Also as we discussed on our last call in September we began to expand spread implication in certain of our futures markets and immediately saw a dramatic increase in the number of prices out the curb. This enhancement to the matching engine enables customers to execute multi-leg trades that generate volume in as many as six or seven contract months. In the fourth quarter we enabled full implication for our Brent and WTI crude oil futures contracts. This quarter we will enable full implication for our Henry Hub natural gas market and have already seen the benefit of this capability in our recently launched NYBOT electronic markets.

Now I'd like to provide an update on the NYBOT acquisition from an operations perspective. We began work in earnest in December following the agreement signed in November for NYBOT to list its products on the ICE platform. We had many challenges both organizationally and technologically. Fortunately as a global company we have much experience in leveraging key staff around the world to focus on problems and seize opportunities despite the logistics involved. In this case ICE staff from Atlanta, Chicago, New York and London (technical difficulty) work with NYBOT on electronic trading preparations.

While third party platform providers typically take 6 to 9 months to launch electronic trading for a new exchange customer ICE and NYBOT personnel completed this effort in less than two months. In New York the technology personnel from ICE team with NYBOT staff in working around the clock to connect the ICE platform to the NYBOT clearing house and to complete key upgrades to NYBOT trade registration, compliance and quote handling systems.

Similarly ICE operations teams from Atlanta and London worked closely with NYBOT floor staff and members to install and test electronic trading capability, including Web ICE and a number of ISPs in the booths and trading pits. Training sessions were offered daily in NYBOT offices and attended by hundreds of traders. Market supervision staff from ICE Futures and London spent several weeks training NYBOT personnel and setting up market supervision tools. Meanwhile NYBOT clearing and membership staff worked with operations personnel in Atlanta to validate and set up over 1500 new users on the ICE platform.

We are pleased that these efforts paid off. Last Friday we had a successful electronic trading launch for NYBOT with more than 12,000 contracts changing hands. Hundreds of firms participated and the screen was painted with tight bid ask spreads and good liquidity throughout the day. This day one success was followed by higher electronic volumes of about 23,000 and 48,000 contracts on Monday and Tuesday. We also saw new open interest records in the first few days. We believe this trend will continue as more longtime NYBOT users, longtime ICE customers and new entrants begin trading these newly electronic markets.

For the NYBOT soft commodities we will be working to expand the number and variety of instruments available for trading and risk management. We also look forward to the rollout of electronic trading for NYBOT's financial products including currencies and indices in the near future. And finally the buildout of our electronic training facility in the world financial center in lower Manhattan is progressing and we expect to open this facility sometime in the second quarter. I will now turn it over to Richard Spencer for more financial details.

Thank you, Chuck. I will now touch on some of our key financial metrics for the record results achieved in the fourth quarter and full year of 2006. First, for the full year, ICE's consolidated revenues totaled $314 million doubling 2005 levels with a 101% increase. Our operating margins rose to 65% from 36% in the prior year. Our net income in 2006 was $143 million an increase of 255%. Earnings per diluted share totaled $2.40.

In the fourth quarter our consolidated revenue of $95 million was driven by industry leading growth in each of our business segments. Consolidated transaction revenues comprising futures and OTC segments totaled $83 million for an increase of 129%. These revenues accounted for 87% of consolidated revenues in the fourth quarter. Market data revenues were $10 million for the quarter an increase of 143% compared to the prior year's fourth-quarter. Approximately 44% of ICE's revenues were derived outside of North America during this year's fourth-quarter.

Transaction revenues for ICE's future segments were $38 million, up 148% over the fourth quarter of 2005. Our Future segment accounted for 46% of fourth-quarter consolidated transaction revenues. OTC transaction revenues increased 115% to $45 million in the fourth quarter compared to the same period in 2005. This was driven primarily by growth in cleared contract volume which rose 130% year-over-year to 33 million contracts during the quarter.

Consolidated operating expenses during the fourth-quarter totaled $31 million an increase of 53% compared to last year's fourth-quarter. As detailed in our earnings release our expense base contained a meaningful variable component which is the Wagner patent expense. This was the primary driver of expense increases in the fourth quarter as trading volume rose. In the fourth quarter these payments were $3 million compared to $600,000 in last year's fourth quarter. Compensation costs relating to FAS 123(R) resulted in a non-cash expense of $2 million compared to $400,000 in last year's fourth-quarter. Compared to last years fourth-quarter our operating income increased 207% from $21 million to $64 million during the quarter. This produced an operating margin of 67%, a 16 percentage point increase over last year's fourth-quarter of 51%.

Net income rose to $49 million an increase of 230% over last year's fourth-quarter. You will note that the tax rate was reduced to 27% in the fourth quarter due to a change in our plans for reinvesting undistributed earnings generated outside of the U.S. This change in the fourth quarter had a $5 million positive impact on our taxes during the quarter and was retroactive. This yielded a meaningful tax benefit due to a true up of taxed expenses recorded in prior periods. Going forward, however, the acquisition of the NYBOT is likely to increase our corporate tax rate.

To briefly review our cash flow, for the full year 2006 consolidated cash flows from operations were $146 million compared to $50 million in 2005. Capital expenditures for the year totaled $12 million and capitalized software development costs were $7 million.

Moving onto our balance sheet as of December 31, 2006 we recorded $282 million in unrestricted cash and investments. With an additional $16 million in restricted cash primarily under the regulatory requirements of our UK subsidiaries. This compares to $133 million in unrestricted cash and investments as of December 31, 2005.

You should note that we used approximately $165 million of our unrestricted cash for the NYBOT transaction on January 12. In this morning's announcement we summarized the details of the credit facility we entered into upon the closing of the transaction. And on January 12 we filed with the SEC on form 8-K the details of the terms of this facility.

I'd also like to direct your intention to our earnings announcement for some of the additional details on our expectations for 2007. With that I will turn it back to Jeff.

Thank you, Richard. And thank you all for your time today. Needless to say we are quite gratified with our results for the fourth-quarter and for 2006. As a leading global commodity exchange with an expanding productline and footprint we are aggressively pursuing opportunities to grow and to innovate for our customers and for our shareholders.

Let me mention to you that Richard Spencer is joining us by telephone today from New York at the NYBOT where we recently named him Vice Chairman and where he is principally handling the business systems integration. I'm in Atlanta today along with most of Richard's key staff from the finance and accounting team. So I may try to handle some of the accounting questions in fairness to Richard. But with that we would be happy to take your questions. Thank you.

(OPERATOR INSTRUCTIONS) Joshua Carter from Goldman Sachs.

Thanks very much, Jeff. I wanted to ask a quick question about the rate per contract and futures; it came in a little bit lower than we had expected. I'm wondering if there is anything going on there, any discounting or any change in the pricing policy?

Starting with the back half of your question. There is no change in the pricing policy but we do have market maker programs in place for some of our contracts. We tend to always use market -- some kind of market maker program whenever we launch a new contract whether it is Futures or OTC. I suspect you are seeing the results of some of that as key market makers trade at a lower rate. Effectively our market maker programs, our rate discounts we don't pay per order to full per se. But tend to offer some kind of discounted rate.

And those usually have a finite timeline or are those sort of indefinite market maker?

We tend to always make them finite. We tend to operate generally speaking; we tend to introduce three-month programs. But those can extend or be modified. But we tend to work in progress as we go forward. So you are seeing I suspect the tail end of a program that existed in 2006. I do think giving some sense of what we are doing -- those programs still remain in effect and will probably remain in effect going into '07.

But you think as a lot of these new products get traction that probably we should see them decline in '08 unless of course they are replaced by a slew of new products where you continue to --

That is our hope obviously, that eventually the -- as you well know the value of a tight bid offer market exceeds the value of any discounts we can offer on the rates since the rates are such a small percentage of the bid offer. So hopefully once you develop a very good bid offer market that is not the driver of growth.

So again it's just the way there aren't any discounts in place to attract higher algorhythmic or the high frequency traders; it's just the waivers?

Yes, I suspect that is what you are seeing there.

Great, thanks so much. And then the second question would relate to OTC. I know in the past we've talked about the pent-up demand that you have in that business, we've talked I think about how there is a pipeline there and that there is continued interest by other big traders in that business and that they are not necessarily fully participating there. Can you give us a little update on how that is progressing and what the status is there?

Sure. You are exactly right in that Futures is more well understood by the trade community than -- broadly, than OTC markets. Our OTC markets are I would say behind, if you will, the adoption rate of Futures. And so we are seeing eligible commercial entities that can participate in over-the-counter trading who are algorhythmic in nature or more high frequency traders are moving more into the over-the-counter market as they come to understand the flow and the pace of energy trading usually beginning with futures. In that regard Chuck mentioned in his prepared comments that we continue to upgrade our platform and we have a slightly different matching engine for OTC trading that we continue to upgrade, really using the tools and techniques that we've learned in Futures trading so that algorithmic traders can have that same experience. Those upgrades in speed performance and capacity in and of themselves continue to attract algorithmic traders who, many of whom are already hooked to the ICE platform for trading Futures.

That is great. And then just a final question on NYBOT. I mean the volumes there have obviously been very impressive on the electronic side doubling every day. Is that just the NYBOT existing user base transitioning to electronic trading? Or are you already seeing some of the ICE participants start to trade electronically in the [sophs]?

Well, we only have three data points; we only have three days of trading. But I think it's fair to say that there's a lot of interest in trading coffee, cocoa and sugar by let's call nontraditional market participants. I think yesterday which would have been the third day of trading we probably had the first participant come in that I would view nontraditionally. But there is a backlog of those people. It's going to take them some time, they need to watch the markets and learn the markets and educate themselves about the markets.

Many people are looking at pick data of historical markets and trying to figure out how they can participate. That's obviously incredibly early days but we do really see demand for these markets because they are unique and interesting and in many cases highly volatile.

And the new participant, is this more of a screen trader type or are there actually algorithmic participants there?

We've got of course --

Some of both.

Yes we have both. But we had our first algorithmic trader I guess is what I would -- speaking of come in yesterday.

Great. Thanks so much.

Rich Repetto from Sandler O'Neill.

First, I've got to congratulate you on a year where you doubled revenue and grow expenses by 10%. We calculate you dropped 94% of every incremental dollar to the pre-tax bottom-line so first, congratulations on a great year.

Thank you.

Now moving forward. The clearing you mentioned some comments on clearing. I am just wondering have we gone the step of notifying LCH of any termination of the clearing arrangement yet?

We have not terminated it -- we have two agreements -- one in futures and one in OTC and we've not terminated. We have started dialoguing with LCH about various ideas that we have. And obviously we are going to be doing that in earnest here. As you know from my prior comments we just hooked the ICE platform to that clearing house and literally have the first trades going through. And we are giving that some time; behind the scenes we are putting tremendous demands on traditional NYBOT clearers and customers with the rapid rollout there. And we are trying to -- while we are being aggressive we are trying to be sensitive to allow people to build systems and to get a feel for how these markets, electronic markets roll through that clearing house. So that is really been our prime focus right now while we are working on new solutions and new opportunities for the NYBOT clearing house.

Okay, I guess in that light, Jeff, I know closing the acquisition seems like it was accelerated. But now having a better peak or Richard having a better peak at NYBOT any updates -- the initial synergies were somewhere over 50 million with about 40 million or so in clearing. After getting the electronic trading up in platform any update on how you view those synergies, you think that is more conservative than you initially anticipated or anything more specific?

Let me take that again in fairness to Richard. I think we are comfortable with the guidance that we gave and its real early days here, Richard has been doing yeoman's work really in there trying to understand the company per se. On the clearing synergies and other synergies that we gave over, that we suspected would come in over a 12 to 18 month period. I think we are comfortable standing by that guidance for now. I do expect that on our next quarter earnings call we will be able to give much more detail on all of these kinds of initiatives because we will have a much deeper dive into that business.

Rich, as we said in the earnings release there that we have a plan, we have milestones on the plan and Jeff hit the nail on the head we are going to have more to talk about in the first quarter. Just from being up here and looking around and getting hands around it we are comfortable with what we told everybody when we first announced.

I guess one more question. Jeff you did talk about acquisitions and JV partners and you gave the three qualifications of what you look at. I was just wondering, you did close the NYBOT but what type of size of future deals -- are you looking more just to add to the existing platform or are these deals could be -- could they be sizable, I guess is the question?

I think, Rich, one of the really positive things that is happening around here is that I think third party that are looking at us and looking at the phenomenal growth and success that we've had, really feel much more comfortable with ICE and people start -- are realizing that we have the ability to use M&A and joint ventures as a growth strategy and that we've been very, very successful in working with other management teams and accommodating historical kinds of agreements and things that exist in many of these businesses that are 100 or 200 years old. And actually closing these transactions and providing value both to the shareholders and the customer. Having that reputation has really helped in that we are seeing a lot of deal flow, other managements of other businesses are thinking about us in their plans.

Compare that to a year ago when you would read an article about the exchange space and we wouldn't even be mentioned. But increasingly I think the way we've handled our business has really worked to the benefit of opening up a lot of other opportunities for us. To answer your question specifically we are looking at very tiny things and very large things and with a mindset on where are we driving the business and how can we get there. And does joint ventures or M&A or other unique structures get us there faster or are we better to move organically and use our own capabilities? And that is the balance that all managers in the space are dealing with right now. But we are seeing a lot of interesting opportunities and I think it is as a result of our success.

Thanks, guys.

Christopher Allen from Banc of America Securities.

Just in terms of some of Chuck's comments about the colocation and the algorithmic traders contributing increasing volumes. Is there any way you can size the contribution from algorithmic traders?

I don't think we've published any statistics on that but it is growing as Jeff said. They are a very meaningful portion of our Futures market. They were there very early as we've seen in the NYBOT markets are very small for now but a lot of them doing their testing and getting their systems set up to trade the NYBOT products. So we expect to see that increase pretty rapidly. And then lastly in the over the counter markets they are increasingly in some of the less liquid OTC markets.

So these markets operate in a way that liquidity providers being hedge funds, project trading shops, algorithmic traders, it's not just the black boxes. It's a mix of computer-based trading and still a lot of high frequency traders using front ends as well.

I guess in terms of thinking about it would you say that in the Futures side the algorithmic guys are somewhere in the fifth inning or the OTC is like the third inning and NYBOT the first inning, is that a fair way to kind of think about it?

I think even the fifth inning could be a little aggressive in that for the most part for Futures markets it is hard to know exactly what strategies these guys are employing. But the trading patterns we do see it is still largely built on being faster and more nimble as opposed necessarily to sophisticated trading strategy or being a lot of different markets. I think there is still a lot of potential down the road for that and I am not sure we are seeing any of that yet.

And then just on the NYBOT side, are there going to be marketmaker discounts for the electronic trading as well? I am just trying to think about how we should think about the rate per contract off the NYBOT electronic volumes.

I think we have not really done anything yet with the sophs but it's an area that we are working on and certainly I think as we move into the financial products, that is an area where I suspect that we will need to do some marketmaker programs. What we did is we kept the historical NYBOT pricing, which has a member and a nonmember rate, it tends to have a relatively low member rate and a relatively high nonmember rate. And so many of the algorithmic traders and traditional marketmakers and hedge funds would not necessarily be members of the NYBOT. And we'd be looking at that high rate. So I think we are going to need to come up with some qualifications that would make that trading attractive. Some of these products are similar to products that are traded on other exchanges. They are sort of a mindset of what they should cost. That will be something that we are going to need to address with that community as we roll forward.

Got you.

I think though much like the early days in our energy markets and the initial move to the screen, the spreads tightening the amount of money that people that everyone trading -- whether it is algorithmic traders or the trade are getting better execution in these markets and that improved price is to a large degree dwarfs the existing fees that you pay for execution.

Great, thanks, guys.

Niamh Alexander from CIBC.

Just a few questions, one, the OTC business carried a very impressive ramp up last year. But you did have a launch of about 50 new products. Can you give me a sense of how much of the volume you could track back to those products? And then what the pipelines for the next year out looks like?

Sure. We estimate that our total revenue from those new products in '06 was around $10 million. And I think you were covering us at the point that we were sort of rolling those out if you recall; some of them came out late in the first quarter and then into the second quarter through about June or so. So the $10 million was really sort of a partial year number. I would expect that we will do better than that on a going forward basis.

In terms of new products and I should just mention as I think you are aware that those products enrich the overall experience around ICE. And we tend to believe that they also drive revenues and business into sort of what I would call the core products that trade OTC. In terms of new products, yes, we have a number of new initiatives that we are working on here. I don't want to make any announcements but clearly we've seen the ability to move over-the-counter business into clearing. We've seen as some of these over-the-counter markets become more vanilla and more like white paint, as we call it, they become more clearable and have broader interest. So we continue to examine the current suite of products that we have and analyze whether they are available for clearing. And then we continue to talk to major dealers and users about derivatives and swaps that look like they are getting to the point where they are more like white paint and the market may benefit by moving them into clearing. And so that is just an ongoing process around here. I would expect that while we may not have quite the huge backlog that we had last year, that is an ongoing process for this year.

Okay that is very helpful, thanks. And then touching back on your guidance for the headcount growth outside of NYBOT of 10 to 15% for '07. Is that primarily front office or sales or is it more software engineering part of the overall upgrade of the systems?

It is a bit of everything. What we -- another great thing about having a successful '06 is that the type of resumes that we are receiving are just phenomenal. And we are sitting with our headquarters in Atlanta and with the big principal operations in London, we are getting resumes from around the globe now of talented people. I came to this business from outside of trading; I'd never traded, Chuck Vice is sitting here and Richard Spencer who is on the phone, we've never traded. We were able to learn the business.

I tend to have a bias that if you find really talented smart people with have a hard work ethic they can really contribute to a business. So we are getting interesting resumes kind of all through the organization and where we find really good people we've hired them. That being said, as you know it's a very scalable model so it doesn't take that many people to continue to grow. But you do need to bring salespeople and help-desk people and people that touch customers in because you do have more customers, you do have more questions, you do need to do more training and education and that part of the business sort of needs to grow a little faster than I would say the technology piece. But where we do find great technology people we do bring them in because we have a lot of ideas on future opportunities above and beyond what we've been traditionally doing.

Okay, that is helpful. Thanks. And just last two quick ones, just for my model can you share with me the revenue from the WTI productline? And the other one was just on NYMAX's move to launch soft commodities during the quarter; does not affect your ability to lease space on the floor or is that issue kind of (indiscernible)?

On your first question about WTI, I don't have that in front of me. I think if you could hold off until we file the Q and provide more visibility into it. On NYBOT, we have NYBOT has a lease in the building and is a lawful tenant under that lease. And certainly we as the new owners continue to operate it as a lawful tenant. And so we expect the landlord to operate lawfully under the lease as well. So we don't really think there is an issue there; it's been a subject of a lot of press talk and speculation. But I think the reality is as you can see that its business as usual.

Okay, that is helpful. Thanks a lot, guys.

Mike Vinciquerra from Raymond James.

Could you remind us you mentioned the currency and index offerings from NYMEX, can you remind us what those products are and what your outlook is in terms of when they might actually start impacting volume and growing?

They have a number of interesting products. They have an area of foreign exchange which are called the crosses, so generally the non dollar-denominated currency payers. And then they have a product called the dollar index which is related to that which is essentially the U.S. dollar against the market basket of currencies. And that is what generally has been called the FINEX business which is a division of NYBOT. And then they have what is sometimes referred to as the old knife business, New York Futures Exchange, which is a number of equity type indices that all of which I've mentioned trades either open outcry or have tended to operate as a block trading facility where people trade these products off exchange and then clear them through NYBOT.

In terms of the timing we don't want to be specific yet but suffice to say that our thinking on product introduction was that you need to be thoughtful. And we've been very, very aggressive at pushing the NYBOT constituency and we've done so for competitive reasons. And it's been very difficult on a lot of our customers and we -- I think we try very, very hard to be sensitive to our customer needs. And so we want to make sure that people can digest an electronic NYBOT and have -- get comfortable with the soft commodities. There are things that you don't really necessarily think about but people have to staff their businesses differently, for example. I mean the hours have changed.

People that have billing systems have only had open outcry systems; there has been no electronic trading. So from an accounting standpoint a lot of people want to track what the volume is electronic and what is done on floor and what is done on block trades and reflect that in billing systems. In quote vendor systems for example, the bid offer is not necessarily shown and only the last trade and on an electronic platform you have the ability to see the bid offer and see more data in real time. So all of those kinds of downstream systems that put a lot of pressure on billers and clearers and quote vendors. And then our users are being modified and we are trying to be somewhat sensitive to that while at the same time protecting the value of the business and the franchise and trying to show some leadership. It's that balance that is really going to dictate how we roll out additional products and when.

Understood. I guess that makes it a little bit easier on you guys in terms of just kind of pacing yourselves in terms of new product introductions, making sure you get it right anyway.

Yes, that is true. Hopefully I mean I think of us as being relatively aggressive. So these will be coming out soon; I don't want to suggest that we are going to sit on our hands. But we are trying to be quite sensitive as best we can.

Okay, thank you. And then two numbers questions if I may. First of all the debt you just took on, I guess it rolls out through 2012. I know that payments continue through that period; I didn't look through all the details. But what do you plan on doing with the dept? Is there an early payment opportunity on that? Do you want to keep some financial leverage to produce better returns in your equity capital?

One of the reasons we took it down and banked that obviously was to allow us that flexibility right now. And we are going to view the markets and the capital markets on an opportunistic basis to see how we go forward.

Okay. So at this point there is no plan to do anything but the regular payment schedule and we will see how that plays out essentially?

That is a safe assumption.

Okay. And then just finally on the weighted shares just for modeling purposes for the first quarter do have an idea what the average diluted share should approximate for Q1 with the NYBOT included?

It is in the press release.

Yes.

I'm looking at it here.

Okay, that is fine. We can do the calculation; I just did not know if you had something handy, thanks, guys.

Just one other the follow-up you asked, is there any penalty to pay the debt off early and the answer is no.

It is true bank debt.

Thank you, guys.

Daniel Goldberg from Bear Stearns.

Good morning, thanks. Can you just give us a little bit more color on the tax rate and why you decided to reinvest the undistributed earnings outside the U.S. maybe where and what you plan on the 50 million?

Let me handle that one. Give you a little caller Daniel on ICE as a taxpayer, we are probably somewhat unique relative to other U.S. exchanges in that as you know we have substantial business from outside the United States and our Futures exchange, ICE Futures is headquartered in London and is a UK taxpayer. Generally speaking you UK tax rates, corporate tax rates are lower than U.S. tax rates. However, when and if we repatriate funds from the UK to the U.S. there is a true up, up to the U.S. rates.

One of the things that happened in connection with the NYBOT acquisition is for the first time we really started to look at our capital structure and trying to figure out how much debt we would take on and how we would structure the debt and so on and so forth. And under accounting laws I guess or GAAP laws we are required to -- we are not allowed to play games with the repatriation of monies. In other words we can't have one quarter where we don't repatriate money and then another one where we do. We need to have some consistency.

So the guidance that we gave you for ICE tax rates last year sort of reflected our view of how we would be repatriating monies consistently over the year. When we got into the NYBOT acquisition and started looking at our capital structure and then started thinking about other investment activities that we may have, we took a slightly different view. And were able to not essentially repatriate as much money as we had thought and what that resulted in was a reversal of an accrual that affected the tax rate for the quarter.

Now the real question that you have I am sure is going forward, what should one model? And it is complicated; we don't have a really good answer right now. I think generally speaking the NYBOT historically has paid tax rates in the very high 40s, 47, 48% type rates. And ICE or the rest of our core business that you are familiar with has generally been around the mid 30s, 34, 35% tax rate. And I don't want to necessarily guide you lower now that we've been getting more sophisticated about how we handle our foreign repatriation, because we've got the NYBOT there which is generally going to on the aggregate raise our tax rate. And as we mentioned Richard has taken the lead and we are looking at how we integrate the business and operate the business and some of that may have repercussions for the tax rate at the NYBOT.

It is kind of a complicated situation right now, you are just going to have to bear with us because of the timing of that merger and I think we will be able to give you more color on the first-quarter call as to what the rate looks like. But I think and I don't want to guide you now other than to say I'm not sure, the way we are running the business we are looking at much different than NYBOT being a very high 40s payer and ICE being a mid 30s percent payer and we will just have to see how it goes.

In terms of the second part of your question which is where and what did we invest the money in. I think at this point I don't want to provide any other guidance or color on it. Other than to say we make investments all the time and we have capital needs and expenditures and things that we've talked about. In addition to new things that we are looking at and we are trying to be more sophisticated in how we organize and how we use our capital structure, while certainly being moral and lawful and ethical about the payment of taxes.

And then in terms of non U.S. business I think Richard mentioned that 44% came from non U.S. in terms of revenues. How high as a percentage of the total can that go or how should we think about the contribution from non U.S. business?

If you look at historical basis you know we are about half and half. I mean it was 47% this time around but it varies around 50%.

Okay. And then just lastly, other revenues and I think you gave some detail in the press release in terms that some new systems caused other revenues to increase significantly sequentially. What is that all about in terms of those new systems fees?

Richard, let me try to handle that. I'll ask my colleagues here to slip me some notes. Okay, we have a number of things that we invest in as you know, Daniel, on technology. One of the things that we've been dealing with is that we pay -- we pay actually life the Euro next life derivatives exchange fees for the use of what is called the PRS system, which is the trade registration system. Which is a piece of technology that sits between us and the London clearinghouse that both we and life use to clear business.

There were some difference in the way those payments went and how we recognized them between Q3 and Q4. I think is that $1.8 million sequential increase between -- the $1.5 million increase between Q3 and Q4 for that system. I don't know if that plugs the number you were looking for. And then obviously we continued to invest in technology. And you will see in the slides that accompany the earnings call here that we provide -- we try to give you some guidance in the CapEx going forward which is in our mind slightly higher than sort of the CapEx guidance that we were giving you last year. Really owing to the fact that the growth of trading has continued to have us invest in hardware and networking systems.

Okay, thank you.

Mark Lane from William Blair.

Regarding pricing the question was posed in regard to marketmakers but what is your thought on addressing for NYBOT overall, will we start to see certain adjustments over time or do you plan to address the plan more comprehensively at one time? What is your thoughts?

I think it is something that we are looking at but you should know we are not uncomfortable with the NYBOT's current pricing structure. We went out with the soft commodities without effectively changing the pricing structure at all. So there is no pricing difference from an exchange standpoint whether you trade on the floor or trade on the screen. You've seen obviously very, very strong early success in the first few days. So we'll continue to analyze that.

We found in at ICE Futures in our Crude Futures contracts we went to a single rate per contract and don't have the concept of member or nonmember anymore. But at the NYBOT we still have an open outcry trading floor, there is history there around the rates and so there really seems to be a need for a member and nonmember rate at this moment. And we will see how it goes electronically and potentially revisit that. But at this point I don't want to suggest that we are not comfortable with it because it certainly -- the electronic trading adoption certainly seems to be going quite well.

You said though that there were expectations about pricing because there are similar products traded elsewhere on different exchanges. What is the variance or the differences that you are referring to?

Well, I think if you want to get more detail the NYBOT publishes its rate on their Website. For example currency crosses or currencies are traded many places as Futures are certainly traded on the CME and then there's a big cash market on systems like EBS and [kernax] and Hotspot and what have you for cash currencies. We will be entering that market with an electronic alternative that will compete it for attention with some of those things. And I think we want to make sure that we get people's attention and look at that in the light of where NYBOT has had its historical rate. Again they may be just fine as is. We are dialoguing with people and we are talking to potential marketmakers and others in anticipation of that launch.

And then regarding the clearing, when the transaction was first announced you set up the thought on clearing as being open to discussions with LCH on different arrangements because it was a very dynamic and developing space. What is the thought process right now? Why haven't you terminated the contract, why haven't you given them notice?

Really only because -- a couple of things. Number one, we want to come up with a really good clearing solution that we think will take our business forward for decades. We have an opportunity to do that with a clean sheet of paper which is something that other exchanges don't necessarily have. We want to make sure we get it right whatever we do. And secondly LCH clearing itself has worked really, really well and it's amazing that we as an exchange without a clearing house really got the concept of OTC clearing going and continue to really grow our OTC clearing business using a third party vendor. We don't want to get rid of things that are working well. And we want to make sure that whatever changes we make we keep all the good stuff and then make it better. We are dialoguing with LCH about what does that look like? What does the footprint look like? We have a unique opportunity here and we just want to make sure that we get it right.

Should we be thinking then if you have to give twelve-month notice that there is no way that you could move to put ICE products on NYBOT clearing. It would be a minimum of twelve months if you gave termination tomorrow? There can't be an acceleration in that process?

If one followed the current agreement and simply wanted to terminate and wholly pick up and move it would be a twelve-month notice. But like any contract, contracts can be renegotiated and changes can be made and so on and so forth. In the absolute it is twelve months; I again hope that you look at our past history and say these guys have been novel and creative and aggressive at the same time and that is kind of the view that I hope you'll have around what we are doing on clearing. We remain comfortable again with the guidance that we gave on the synergies, the 12 to 18 month timeframe, certainly within a 12 to 18 month timeframe one could affect what you suggested which is just a pure termination and move. But there are other alternatives as well and we want to explore all those.

I understand, thank you.

Jonathan Casteleyn from Wachovia Capital.

Good morning. You touched on it very briefly; I am just wondering if you could provide some commentary on the remaining efficiency in OTC? I mean obviously volume trends have been very robust. I am just wondering exactly how much electronification and efficiency do you see left in the marketplace by virtue of your platform?

I think as Chuck indicated that we are sort of in the early phases of the adoption of OTC trading by the algorithmic traders that you've probably become familiar with from covering other exchanges. So I think it is relatively early. You've seen ICE working with the CFTC in the United States and on the OTC space to figure out the regulatory footprint and oversight of that. It is truly an evolving market. And it is truly coming into a more organized space; where it is more transparent, there's more electronics obviously, more regulatory oversight and a broader reach because of the electronic trading. It still feels early and it is certainly relative to Futures, that would be the case.

Okay, great. And then just historically is there any train of thought that says that Hurricane Katrina in 2005 and current cyclical highs in energy have outsizely benefited your business. Can you talk about maybe some of the secular trends that you think would go through some of these cyclical or onetime items?

Sure, that is a good question because we get asked that all the time by people that are trying to understand our business. Underlying everything are the growth drivers that we believe are the growth drivers that you are familiar with. Just the movement from analog to digital, the globalization, the easy access to these markets and additional institutional investment dollars that are coming into commodities as an asset class. And that is affecting obviously Futures but making its way into the over the counter markets as well.

And then you lay on top of that just the cyclical nature of supply and demand and weather and global delivery problems some of which are political, that drive the cyclical nature. Coupled with hedgers, people that -- more people that are trying to lay off price risk and exposure. It is hard to predict, it's partly why we don't give guidance as you know from following us. We had Katrina obviously a year ago and then this last summer in North America we didn't even have a hurricane to speak of. That affects the mindset of traders and people that are trying to lay off risk not only for that hurricane period, but then how they are looking forward and how they are looking at the year going forward.

Similarly in North America we had a relatively mild November and December from a weather standpoint and now it is getting quite cold. You saw kind of a soft November December trading period and you've seen from our release last week robust OTC trading coming out in January. They are very hard to predict. I know it is hard for you all to model the stuff, it is certainly hard for us to predict in running our business as well. But there are these cyclical trends in energy that lay over but really when you look at it on a longer-term basis, this tremendous growth driver seem to be overcoming all those trends.

Great, I just have two questions for Richard, if I may. You gave us CapEx guidance into 2007. I am just wondering what total OpEx guidance into '07 is? I believe you did about 109 million on ICE for '06. I am just wondering what the consolidated might look like into '07?

We are not going to provide that.

Okay. And then just historically the percentage of non-cash comp of total comp? I am just trying to back into exactly what (multiple speakers) comp levels.

If you take a run on that you're going to get a feel; it's obviously going to be connected with the install base of employees we have now and the option overhang. Get a feel for where we are now with additional headcount added in I think you can take an extrapolation from there.

(multiple speakers) provide some sense in the press release, if you take a look at that.

Okay. And then just parsing through the CapEx number, 25 to 30. Can you parse through what's for ICE and what is for NYBOT?

No, other than the fact that we run one trading platform and then we bill out, if you will, underneath the various business units for the use of that platform.

I see. So no gestimate?

No.

Thank you very much for your time.

Rob Rutschow from Prudential Equity Group.

I was wondering the pretax margin was down a little bit; I'm guessing probably some of that was year end. I was wondering if you did have a bit of ramp up to support the accelerated closing of the NYBOT transaction in terms of costs?

I think there's a couple of things happened in that quarter, there was a non-cash compensation increase of almost $1 million that came in, that was a whole bunch of things that came together, if you will. And we had a slight SG&A increase some of which was due to taking on additional rents and we announced that we rented additional space in New York, for example, around the NYBOT. So I think it was the amalgamation of those things is probably what you are seeing.

Okay. And can you just remind us of what your dilution guidance is at this point?

On the share count?

Well, just for the deal in general, and how you expect that to play out through the year?

I think if you take a look at the press release that is the best information and the best gestimate we have on how the share count intends to go. I think you are aware that we have distributed the shares to the NYBOT seat holders. In terms of the share count related to NYBOT that is already in the market.

Okay. And just to double-check, the 36% to 38% tax rate that is for NYBOT and ICE together, correct?

Yes.

Yes, that is a combined tax rate.

Okay, thanks a lot.

Edward Ditmire from Fox-Pitt, Kelton.

Most of my questions have been answered but I have a question on options on Futures; I mean specifically on the legacy energy business. With including your competitor all the huge amounts of trading and energy futures now being electronic. Are you seeing any shifts in the dynamics of historically how difficult it has been to trade the options on Futures on an electronic platform, is that getting any easier?

That's a good question. I will give you just some editorial thoughts. We think there has been a rise in the adoption -- just the use of options as Futures themselves have become more liquid and transparent, more and more people are starting to trade options. So it is definitely a growth area around our space.

From my standpoint, and I don't mean to be pejorative to anybody in the space, but I'm not sure that the model for how to trade options using electronics has really been defined yet by anybody. Obviously the CME has had some good success but early on Eurodollar options, but still it is a relatively small percentage of those options which are relatively understood. And somewhat I will use the word vanilla but again not to be pejorative, relative to maybe options on some of the other commodities like energy.

It is still an area where we spend a tremendous amount of time thinking about. We've hired some very, very strong talent and created some talent to help us in that area. And it's an area that we think is up for grabs and we are very, very interested in coming up with a model that works for more electronic interface with options. Contrary to maybe what people believe, we do have options trading capabilities in our platform and options do trade on ICE. And I think the options volume has been growing electronically on ICE. But fair self-criticism is that I'm not sure we have the right solution in the market right now and it's an area that we are spending a lot of time and attention on.

Thank you.

We have no further questions in the queue. I'd like to turn the call back over to your presenters for any additional or closing remarks.

Again thank you all; it was really a great 2006 and a good fourth quarter of '06. Appreciate all of your interest and support in the business and we look forward to talking to you on next quarter on our next earnings call. Thank you.

And this concludes today's conference, we thank you for your participation.