ICE buys Singapore Mercantile Exchange to serve as Asian hub

IntercontinentalExchange said on Tuesday it would buy the Singapore Mercantile Exchange (SMX) in a US$150 million deal that gives it a foothold in trading and clearing in Asia, the main engine of growth for the commodities market.

ICE said it would buy the operation from embattled Indian trading platform provider Financial Technologies (India), less than a week after closing its US$11 billion takeover of NYSE Euronext.

“Events and circumstances led to an opportunity for us to acquire it, and we jumped on it,” ICE chief executive Jeff Sprecher said on a call with analysts.

SMX operates futures markets in Singapore across metals, currencies, energy and agriculture but has attracted limited volumes since it started in 2010.

ICE is not actually interested in the existing business, which is losing money, but rather in buying the ability to offer and clear trading in Asia, Sprecher said.

“We are really buying the infrastructure and the fact that we would avoid a three-year process if we were to start on our own, and the fact that it’s not particularly easy in Asia for a Western company to start an exchange and clearing infrastructure,” he said.

The deal can be compared with ICE’s purchase of Chicago-based credit default swap (CDS) clearinghouse The Clearing Corporation, which closed in 2009, ICE chief financial officer Scott Hill said.

He said that was also a money-losing business, it was relatively small, and while ICE was not interested in the products cleared there at that time, it served a set of customers ICE knew and moved it into an area where its competitors were not.

“We saw the CDS world evolving at that time towards clearing and bought an asset to serve it. We see the potential of the energy world maybe trading more in Asia than it does today, and we want to be prepared to serve that,” Hill said at a conference on Tuesday.

Hill said ICE’s customers in Asia have been vocal about their concerns over the regulatory uncertainty in the United States and Europe and that they might not want to continue to operate in those places.

“We’ve got a very significant Asian-based energy customer set that we wanted to continue to serve, and so we felt like the SMX purchase gave us the opportunity to serve that customer set locally, whereas in the past, we served that customer set largely out of the UK,” he said.

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