The Growth of the Intercontinental Exchange
ChainTrade looks to open the world of exchange and in doing so models itself after others that have made the marketing world a better place. One of these models for ChainTrade, and a company that ChainTrade is looking to parallel, is the Intercontinental Exchange.
What is the Intercontinental Exchange?
Founded seventeen years ago in 2000, and headquartered in Atlanta Georgia, the Intercontinental Exchange (ICE) was created by Jeffrey Sprecher, who now acts as CEO. The Wisconsin-born American worked in the power industry for an extended period, including at the Western Power Group. Sprecher was a power plant developer and wanted to create a transparent and efficient market for energy commodity trading.
He was able to acquire the Continental Power Exchange for $1 in 1996, which became the nascent seed of the Intercontinental Exchange in 1996. Sprecher imagined the ICE as “a sort of eBay for energy,” and was intended to compete with energy giants like Enron. Backed by Goldman Sachs and Morgan Stanley, two major banks in the United States, ICE exploded in size when Enron collapsed due to scandal. Since this early success ICE has continued to grow, acquiring several exchanges such as the International Petroleum Exchange, the Climate Exchange and the New York Board of Trade.
How does ICE work?
The Fortune 500 company has created a global system of markets and clearinghouses to exchange futures and options on a variety of products. These include agricultural products, crude and refined oil, electricity, and natural gases and liquids.
Their customer base, which is composed of individual investors, banks, asset managers, commercial hedging firms and others come to the exchange to buy and sell futures, options and other assets.
ICE also brings together a variety of information for customers, especially as many transactions have become automated. ICE’s data service includes information on regulatory reform, indexation, independent valuations, analytics and desktop tools. The information is gathered from across the exchange along with the New York Stock Exchange, Super Derivatives and Interactive Data.
How ICE shaped the future
ICE had a pivotal insight that changed the market for energy. The idea was simple — to open up exchanges at a lower bar of entry for investors who had previously been unable to gain access. To this end, ICE was aided by new technology and began as an online marketplace for energy trading and grew from there. ICE coupled the new technology of the internet with the marketplace.
Regulated by the Federal Reserve Bank of New York and the New York State Banking Department, ICE has ensured trading even amongst member banks. ICE monitors the creditworthiness of its members and can demand additional collateral if circumstances warrant.
All these factors have led ICE to be a powerhouse in the world market and ICE has cleared more than $10 trillion in swaps. These derivative contracts are financial agreements that occur during credit default and has the seller compensate the buyer in the event of a default. What is important though, is that ICE opened new opportunities for market players.
Parallel Players: ChainTrade and ICE
Like ICE, ChainTrade is opening the exchange markets. Just as ICE began as an online marketplace, ChainTrade does the same but ChainTrade takes technology one step further by using the blockchain. The digital ledgers that compose a blockchain allow for automated transfers which expedite exchanges and lowers costs.
Blockchain technology is exploding in growth and its corresponding currencies are gaining value at an astronomical rate. This opening of the market is like ICE’s expansion in the market for energy exchange.
Like ICE, ChainTrade’s founding members have a background in the business they are pursuing. The CEO of the company, Vincent Jacques, began his career in investment banking and other members of the team include former directors of the New York Stock Exchange and Euronext and an advisor from Nasdaq Europe.
Just as ICE used the internet to make exchanges seamless and easier, ChainTrade does the same with cryptocurrencies and blockchains. Each transaction will be validated across a peer-to-peer network, preventing double spending and duplication. Research conducted estimates that back-office costs such as clearing, reconciliations, and regulatory reporting make up 30% of the cost of a commodity exchange. Blockchain technology can potentially cut down the cost of exchange by nearly 80%.
One step further in the marketplace
ChainTrade further improves the exchange process through the use of smart contracts. Using blockchain technology, computer protocols, or smart contracts, can be set up in exchanges that execute a contract when certain parameters are met. All the users in the exchange can see the entire process, making everything transparent.
For example, if a user wants to make a purchase of 100 barrels of oil and a second user wants to sell 100 barrels of oil, the buyer and seller are put together by the smart contract. The transactions are made quickly and efficiently. In addition, protocols have been put in place to make dispute resolution a simple matter that rarely takes more than a few days.
These measures push ChainTrade ahead of its time just as the ICE was. Finally, just as the market for energy was controlled by a few companies so too have the major exchanges such as Eurex and the CME controlled the landscape for food and raw materials. The ice broke through the monopolies and created its own path. ChainTrade promises to do the same.
The ice broke the mould of what exchanges could do during its time. It melted down walls that were frozen with bureaucracy. ChainTrade will do the same and break the chains that bind today’s exchanges down.
