ICE » Topics » A decline in the production of commodities traded in our markets could reduce our liquidity and adversely affect our revenues and profitability.

These excerpts taken from the ICE 10-K filed Feb 11, 2009.
A decline in the production of commodities traded in our markets could reduce our liquidity and adversely affect our revenues and profitability.
 
We derived 84.4%, 84.3% and 86.1% of our consolidated revenues for the years ended December 31, 2008, 2007 and 2006, respectively, from exchange, commission and clearing fees generated from trading in commodity products in our futures and OTC markets. The volume of contracts traded in the futures and OTC markets for any specific commodity tends to be a multiple of the physical production of that commodity. If the physical supply or production of any commodity declines, market participants could become less willing to trade in contracts based on that commodity. For example, the ICE Brent Crude futures contract has been subject to this risk as production of Brent crude oil peaked in 1984 and began steadily falling in subsequent years. We, in consultation with market participants, altered the mechanism for settlement of ICE Brent Crude futures contract to a mechanism based on the Brent/Forties/Oseberg North Sea oil fields, known as the BFO Index, to ensure that the commodity prices on which its settlement price is based reflect a large enough pool of traders and trading activity so as to be less susceptible to manipulation. Market participants that trade in ICE Brent Crude futures may determine in the future, however, that additional underlying commodity products need to be considered in the settlement of that contract or that the settlement mechanism is not credible.
 
For example, exchange fees earned from trading in the ICE Brent Crude futures contract accounted for 46.6%, 47.6% and 50.5% of our total revenues from our energy futures business, net of intersegment fees, for the years ended December 31, 2008, 2007 and 2006, respectively, or 11.4%, 15.2% and 20.4% of our consolidated revenues for the years ended December 31, 2008, 2007 and 2006, respectively. Any uncertainty concerning the settlement of the ICE Brent Crude futures contract, or a decline in the physical supply or production of any other commodity on which our trading products are based, could result in a decline in trading volumes in our markets, adversely affecting our revenues and profitability.
 
We intend to explore acquisition opportunities and strategic alliances relating to other businesses, products or technologies. We may not be successful in identifying opportunities or integrating other businesses, products or technologies successfully with our business. Any such transaction also may not produce the results we anticipate.
 
We intend to continue to explore and pursue acquisition and other opportunities to strengthen our business and grow our company. We may enter into business combination transactions, make acquisitions or enter into strategic partnerships, joint ventures or alliances, any of which may be material. We may enter into these transactions to acquire other businesses, products or technologies to expand our products and services, advance our technology or take advantage of new developments and potential changes in the industry.
 
The market for acquisition targets and strategic alliances is highly competitive, particularly in light of increasing consolidation in the exchange sector. As a result, we may be unable to identify strategic opportunities or we may be unable to negotiate or finance any future acquisition successfully. Further, our competitors could merge, making it more difficult for us to find appropriate entities to acquire or merge with and making it more difficult to compete in our industry due to the increased resources of our merged competitors. If we are required to raise capital by incurring additional debt or issuing additional equity for any reason in connection with a strategic acquisition or investment, we cannot assure that any such financing will be available or that the terms of such financing will be favorable to us.
 
The process of integration may produce unforeseen regulatory and operating difficulties and expenditures and may divert the attention of management from the ongoing operation of our business. Further, as a result of any future acquisition, we may issue additional shares of our common stock that dilute shareholders’ ownership interest in us, expend cash, incur debt, assume contingent liabilities or create additional expenses related to amortizing intangible assets with estimable useful lives, any of which could harm our business, financial condition or results of operations and negatively impact our stock price.


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A decline in the production of commodities traded in our markets could reduce our liquidity and adversely affect our revenues and profitability.
 
We derived 84.4%, 84.3% and 86.1% of our consolidated revenues for the years ended December 31, 2008, 2007 and 2006, respectively, from exchange, commission and clearing fees generated from trading in commodity products in our futures and OTC markets. The volume of contracts traded in the futures and OTC markets for any specific commodity tends to be a multiple of the physical production of that commodity. If the physical supply or production of any commodity declines, market participants could become less willing to trade in contracts based on that commodity. For example, the ICE Brent Crude futures contract has been subject to this risk as production of Brent crude oil peaked in 1984 and began steadily falling in subsequent years. We, in consultation with market participants, altered the mechanism for settlement of ICE Brent Crude futures contract to a mechanism based on the Brent/Forties/Oseberg North Sea oil fields, known as the BFO Index, to ensure that the commodity prices on which its settlement price is based reflect a large enough pool of traders and trading activity so as to be less susceptible to manipulation. Market participants that trade in ICE Brent Crude futures may determine in the future, however, that additional underlying commodity products need to be considered in the settlement of that contract or that the settlement mechanism is not credible.
 
For example, exchange fees earned from trading in the ICE Brent Crude futures contract accounted for 46.6%, 47.6% and 50.5% of our total revenues from our energy futures business, net of intersegment fees, for the years ended December 31, 2008, 2007 and 2006, respectively, or 11.4%, 15.2% and 20.4% of our consolidated revenues for the years ended December 31, 2008, 2007 and 2006, respectively. Any uncertainty concerning the settlement of the ICE Brent Crude futures contract, or a decline in the physical supply or production of any other commodity on which our trading products are based, could result in a decline in trading volumes in our markets, adversely affecting our revenues and profitability.
 
We intend to explore acquisition opportunities and strategic alliances relating to other businesses, products or technologies. We may not be successful in identifying opportunities or integrating other businesses, products or technologies successfully with our business. Any such transaction also may not produce the results we anticipate.
 
We intend to continue to explore and pursue acquisition and other opportunities to strengthen our business and grow our company. We may enter into business combination transactions, make acquisitions or enter into strategic partnerships, joint ventures or alliances, any of which may be material. We may enter into these transactions to acquire other businesses, products or technologies to expand our products and services, advance our technology or take advantage of new developments and potential changes in the industry.
 
The market for acquisition targets and strategic alliances is highly competitive, particularly in light of increasing consolidation in the exchange sector. As a result, we may be unable to identify strategic opportunities or we may be unable to negotiate or finance any future acquisition successfully. Further, our competitors could merge, making it more difficult for us to find appropriate entities to acquire or merge with and making it more difficult to compete in our industry due to the increased resources of our merged competitors. If we are required to raise capital by incurring additional debt or issuing additional equity for any reason in connection with a strategic acquisition or investment, we cannot assure that any such financing will be available or that the terms of such financing will be favorable to us.
 
The process of integration may produce unforeseen regulatory and operating difficulties and expenditures and may divert the attention of management from the ongoing operation of our business. Further, as a result of any future acquisition, we may issue additional shares of our common stock that dilute shareholders’ ownership interest in us, expend cash, incur debt, assume contingent liabilities or create additional expenses related to amortizing intangible assets with estimable useful lives, any of which could harm our business, financial condition or results of operations and negatively impact our stock price.


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Table of Contents

A decline in the production of commodities traded in our markets could reduce our liquidity and adversely affect our revenues and profitability.
 
We derived 84.4%, 84.3% and 86.1% of our consolidated revenues for the years ended December 31, 2008, 2007 and 2006, respectively, from exchange, commission and clearing fees generated from trading in commodity products in our futures and OTC markets. The volume of contracts traded in the futures and OTC markets for any specific commodity tends to be a multiple of the physical production of that commodity. If the physical supply or production of any commodity declines, market participants could become less willing to trade in contracts based on that commodity. For example, the ICE Brent Crude futures contract has been subject to this risk as production of Brent crude oil peaked in 1984 and began steadily falling in subsequent years. We, in consultation with market participants, altered the mechanism for settlement of ICE Brent Crude futures contract to a mechanism based on the Brent/Forties/Oseberg North Sea oil fields, known as the BFO Index, to ensure that the commodity prices on which its settlement price is based reflect a large enough pool of traders and trading activity so as to be less susceptible to manipulation. Market participants that trade in ICE Brent Crude futures may determine in the future, however, that additional underlying commodity products need to be considered in the settlement of that contract or that the settlement mechanism is not credible.
 
For example, exchange fees earned from trading in the ICE Brent Crude futures contract accounted for 46.6%, 47.6% and 50.5% of our total revenues from our energy futures business, net of intersegment fees, for the years ended December 31, 2008, 2007 and 2006, respectively, or 11.4%, 15.2% and 20.4% of our consolidated revenues for the years ended December 31, 2008, 2007 and 2006, respectively. Any uncertainty concerning the settlement of the ICE Brent Crude futures contract, or a decline in the physical supply or production of any other commodity on which our trading products are based, could result in a decline in trading volumes in our markets, adversely affecting our revenues and profitability.
 
We intend to explore acquisition opportunities and strategic alliances relating to other businesses, products or technologies. We may not be successful in identifying opportunities or integrating other businesses, products or technologies successfully with our business. Any such transaction also may not produce the results we anticipate.
 
We intend to continue to explore and pursue acquisition and other opportunities to strengthen our business and grow our company. We may enter into business combination transactions, make acquisitions or enter into strategic partnerships, joint ventures or alliances, any of which may be material. We may enter into these transactions to acquire other businesses, products or technologies to expand our products and services, advance our technology or take advantage of new developments and potential changes in the industry.
 
The market for acquisition targets and strategic alliances is highly competitive, particularly in light of increasing consolidation in the exchange sector. As a result, we may be unable to identify strategic opportunities or we may be unable to negotiate or finance any future acquisition successfully. Further, our competitors could merge, making it more difficult for us to find appropriate entities to acquire or merge with and making it more difficult to compete in our industry due to the increased resources of our merged competitors. If we are required to raise capital by incurring additional debt or issuing additional equity for any reason in connection with a strategic acquisition or investment, we cannot assure that any such financing will be available or that the terms of such financing will be favorable to us.
 
The process of integration may produce unforeseen regulatory and operating difficulties and expenditures and may divert the attention of management from the ongoing operation of our business. Further, as a result of any future acquisition, we may issue additional shares of our common stock that dilute shareholders’ ownership interest in us, expend cash, incur debt, assume contingent liabilities or create additional expenses related to amortizing intangible assets with estimable useful lives, any of which could harm our business, financial condition or results of operations and negatively impact our stock price.


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Table of Contents

A
decline in the production of commodities traded in our markets
could reduce our liquidity and adversely affect our revenues and
profitability.



 



We derived 84.4%, 84.3% and 86.1% of our consolidated revenues
for the years ended December 31, 2008, 2007 and 2006,
respectively, from exchange, commission and clearing fees
generated from trading in commodity products in our futures and
OTC markets. The volume of contracts traded in the futures and
OTC markets for any specific commodity tends to be a multiple of
the physical production of that commodity. If the physical
supply or production of any commodity declines, market
participants could become less willing to trade in contracts
based on that commodity. For example, the ICE Brent Crude
futures contract has been subject to this risk as production of
Brent crude oil peaked in 1984 and began steadily falling in
subsequent years. We, in consultation with market participants,
altered the mechanism for settlement of ICE Brent Crude futures
contract to a mechanism based on the Brent/Forties/Oseberg North
Sea oil fields, known as the BFO Index, to ensure that the
commodity prices on which its settlement price is based reflect
a large enough pool of traders and trading activity so as to be
less susceptible to manipulation. Market participants that trade
in ICE Brent Crude futures may determine in the future, however,
that additional underlying commodity products need to be
considered in the settlement of that contract or that the
settlement mechanism is not credible.


 



For example, exchange fees earned from trading in the ICE Brent
Crude futures contract accounted for 46.6%, 47.6% and 50.5% of
our total revenues from our energy futures business, net of
intersegment fees, for the years ended December 31, 2008,
2007 and 2006, respectively, or 11.4%, 15.2% and 20.4% of our
consolidated revenues for the years ended December 31,
2008, 2007 and 2006, respectively. Any uncertainty concerning
the settlement of the ICE Brent Crude futures contract, or a
decline in the physical supply or production of any other
commodity on which our trading products are based, could result
in a decline in trading volumes in our markets, adversely
affecting our revenues and profitability.


 




We
intend to explore acquisition opportunities and strategic
alliances relating to other businesses, products or
technologies. We may not be successful in identifying
opportunities or integrating other businesses, products or
technologies successfully with our business. Any such
transaction also may not produce the results we
anticipate.



 



We intend to continue to explore and pursue acquisition and
other opportunities to strengthen our business and grow our
company. We may enter into business combination transactions,
make acquisitions or enter into strategic partnerships, joint
ventures or alliances, any of which may be material. We may
enter into these transactions to acquire other businesses,
products or technologies to expand our products and services,
advance our technology or take advantage of new developments and
potential changes in the industry.


 



The market for acquisition targets and strategic alliances is
highly competitive, particularly in light of increasing
consolidation in the exchange sector. As a result, we may be
unable to identify strategic opportunities or we may be unable
to negotiate or finance any future acquisition successfully.
Further, our competitors could merge, making it more difficult
for us to find appropriate entities to acquire or merge with and
making it more difficult to compete in our industry due to the
increased resources of our merged competitors. If we are
required to raise capital by incurring additional debt or
issuing additional equity for any reason in connection with a
strategic acquisition or investment, we cannot assure that any
such financing will be available or that the terms of such
financing will be favorable to us.


 



The process of integration may produce unforeseen regulatory and
operating difficulties and expenditures and may divert the
attention of management from the ongoing operation of our
business. Further, as a result of any future acquisition, we may
issue additional shares of our common stock that dilute
shareholders’ ownership interest in us, expend cash, incur
debt, assume contingent liabilities or create additional
expenses related to amortizing intangible assets with estimable
useful lives, any of which could harm our business, financial
condition or results of operations and negatively impact our
stock price.





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Table of Contents







A
decline in the production of commodities traded in our markets
could reduce our liquidity and adversely affect our revenues and
profitability.



 



We derived 84.4%, 84.3% and 86.1% of our consolidated revenues
for the years ended December 31, 2008, 2007 and 2006,
respectively, from exchange, commission and clearing fees
generated from trading in commodity products in our futures and
OTC markets. The volume of contracts traded in the futures and
OTC markets for any specific commodity tends to be a multiple of
the physical production of that commodity. If the physical
supply or production of any commodity declines, market
participants could become less willing to trade in contracts
based on that commodity. For example, the ICE Brent Crude
futures contract has been subject to this risk as production of
Brent crude oil peaked in 1984 and began steadily falling in
subsequent years. We, in consultation with market participants,
altered the mechanism for settlement of ICE Brent Crude futures
contract to a mechanism based on the Brent/Forties/Oseberg North
Sea oil fields, known as the BFO Index, to ensure that the
commodity prices on which its settlement price is based reflect
a large enough pool of traders and trading activity so as to be
less susceptible to manipulation. Market participants that trade
in ICE Brent Crude futures may determine in the future, however,
that additional underlying commodity products need to be
considered in the settlement of that contract or that the
settlement mechanism is not credible.


 



For example, exchange fees earned from trading in the ICE Brent
Crude futures contract accounted for 46.6%, 47.6% and 50.5% of
our total revenues from our energy futures business, net of
intersegment fees, for the years ended December 31, 2008,
2007 and 2006, respectively, or 11.4%, 15.2% and 20.4% of our
consolidated revenues for the years ended December 31,
2008, 2007 and 2006, respectively. Any uncertainty concerning
the settlement of the ICE Brent Crude futures contract, or a
decline in the physical supply or production of any other
commodity on which our trading products are based, could result
in a decline in trading volumes in our markets, adversely
affecting our revenues and profitability.


 




We
intend to explore acquisition opportunities and strategic
alliances relating to other businesses, products or
technologies. We may not be successful in identifying
opportunities or integrating other businesses, products or
technologies successfully with our business. Any such
transaction also may not produce the results we
anticipate.



 



We intend to continue to explore and pursue acquisition and
other opportunities to strengthen our business and grow our
company. We may enter into business combination transactions,
make acquisitions or enter into strategic partnerships, joint
ventures or alliances, any of which may be material. We may
enter into these transactions to acquire other businesses,
products or technologies to expand our products and services,
advance our technology or take advantage of new developments and
potential changes in the industry.


 



The market for acquisition targets and strategic alliances is
highly competitive, particularly in light of increasing
consolidation in the exchange sector. As a result, we may be
unable to identify strategic opportunities or we may be unable
to negotiate or finance any future acquisition successfully.
Further, our competitors could merge, making it more difficult
for us to find appropriate entities to acquire or merge with and
making it more difficult to compete in our industry due to the
increased resources of our merged competitors. If we are
required to raise capital by incurring additional debt or
issuing additional equity for any reason in connection with a
strategic acquisition or investment, we cannot assure that any
such financing will be available or that the terms of such
financing will be favorable to us.


 



The process of integration may produce unforeseen regulatory and
operating difficulties and expenditures and may divert the
attention of management from the ongoing operation of our
business. Further, as a result of any future acquisition, we may
issue additional shares of our common stock that dilute
shareholders’ ownership interest in us, expend cash, incur
debt, assume contingent liabilities or create additional
expenses related to amortizing intangible assets with estimable
useful lives, any of which could harm our business, financial
condition or results of operations and negatively impact our
stock price.





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Table of Contents







A
decline in the production of commodities traded in our markets
could reduce our liquidity and adversely affect our revenues and
profitability.



 



We derived 84.4%, 84.3% and 86.1% of our consolidated revenues
for the years ended December 31, 2008, 2007 and 2006,
respectively, from exchange, commission and clearing fees
generated from trading in commodity products in our futures and
OTC markets. The volume of contracts traded in the futures and
OTC markets for any specific commodity tends to be a multiple of
the physical production of that commodity. If the physical
supply or production of any commodity declines, market
participants could become less willing to trade in contracts
based on that commodity. For example, the ICE Brent Crude
futures contract has been subject to this risk as production of
Brent crude oil peaked in 1984 and began steadily falling in
subsequent years. We, in consultation with market participants,
altered the mechanism for settlement of ICE Brent Crude futures
contract to a mechanism based on the Brent/Forties/Oseberg North
Sea oil fields, known as the BFO Index, to ensure that the
commodity prices on which its settlement price is based reflect
a large enough pool of traders and trading activity so as to be
less susceptible to manipulation. Market participants that trade
in ICE Brent Crude futures may determine in the future, however,
that additional underlying commodity products need to be
considered in the settlement of that contract or that the
settlement mechanism is not credible.


 



For example, exchange fees earned from trading in the ICE Brent
Crude futures contract accounted for 46.6%, 47.6% and 50.5% of
our total revenues from our energy futures business, net of
intersegment fees, for the years ended December 31, 2008,
2007 and 2006, respectively, or 11.4%, 15.2% and 20.4% of our
consolidated revenues for the years ended December 31,
2008, 2007 and 2006, respectively. Any uncertainty concerning
the settlement of the ICE Brent Crude futures contract, or a
decline in the physical supply or production of any other
commodity on which our trading products are based, could result
in a decline in trading volumes in our markets, adversely
affecting our revenues and profitability.


 




We
intend to explore acquisition opportunities and strategic
alliances relating to other businesses, products or
technologies. We may not be successful in identifying
opportunities or integrating other businesses, products or
technologies successfully with our business. Any such
transaction also may not produce the results we
anticipate.



 



We intend to continue to explore and pursue acquisition and
other opportunities to strengthen our business and grow our
company. We may enter into business combination transactions,
make acquisitions or enter into strategic partnerships, joint
ventures or alliances, any of which may be material. We may
enter into these transactions to acquire other businesses,
products or technologies to expand our products and services,
advance our technology or take advantage of new developments and
potential changes in the industry.


 



The market for acquisition targets and strategic alliances is
highly competitive, particularly in light of increasing
consolidation in the exchange sector. As a result, we may be
unable to identify strategic opportunities or we may be unable
to negotiate or finance any future acquisition successfully.
Further, our competitors could merge, making it more difficult
for us to find appropriate entities to acquire or merge with and
making it more difficult to compete in our industry due to the
increased resources of our merged competitors. If we are
required to raise capital by incurring additional debt or
issuing additional equity for any reason in connection with a
strategic acquisition or investment, we cannot assure that any
such financing will be available or that the terms of such
financing will be favorable to us.


 



The process of integration may produce unforeseen regulatory and
operating difficulties and expenditures and may divert the
attention of management from the ongoing operation of our
business. Further, as a result of any future acquisition, we may
issue additional shares of our common stock that dilute
shareholders’ ownership interest in us, expend cash, incur
debt, assume contingent liabilities or create additional
expenses related to amortizing intangible assets with estimable
useful lives, any of which could harm our business, financial
condition or results of operations and negatively impact our
stock price.





37





Table of Contents







These excerpts taken from the ICE 10-K filed Feb 13, 2008.
A decline in the production of commodities traded in our markets could reduce our liquidity and adversely affect our revenues and profitability.
 
We derived 84.3%, 86.1% and 86.9% of our consolidated revenues for the years ended December 31, 2007, 2006 and 2005, respectively, from exchange fees and commission fees generated from trading in commodity products in our futures and OTC markets. The volume of contracts traded in the futures and OTC markets for any specific commodity tends to be a multiple of the physical production of that commodity. If the physical supply or production of any commodity declines, market participants could become less willing to trade in contracts based on that commodity. For example, ICE Brent Crude futures contract has been subject to this risk as production of Brent crude oil peaked in 1984 and began steadily falling in subsequent years. We, in consultation with market participants, altered the mechanism for settlement of ICE Brent Crude futures contract to a mechanism based on the Brent/Forties/Oseberg North Sea oil fields, known as the BFO Index, to ensure that the commodity prices on which its settlement price is based reflect a large enough pool of traders and trading activity so as to be less susceptible to manipulation. Market participants that trade in ICE Brent


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Table of Contents

Crude futures contract may determine in the future, however, that additional underlying commodity products need to be considered in the settlement of that contract or that the settlement mechanism is not credible.
 
Exchange fees earned from trading in ICE Brent Crude futures contract accounted for 47.6%, 50.5% and 68.8% of our total revenues from our energy futures business, net of intersegment fees, for the years ended December 31, 2007, 2006 and 2005, respectively, or 15.2%, 20.4% and 26.5% of our consolidated revenues for the years ended December 31, 2007, 2006 and 2005, respectively. Any uncertainty concerning the settlement of ICE Brent Crude futures contract, or a decline in the physical supply or production of any other commodity on which our trading products are based could result in a decline in trading volumes in our markets, adversely affecting our revenues and profitability.
 
In connection with our strategy to form a wholly-owned European clearing house, we served notice to terminate our clearing arrangements with LCH.Clearnet, which currently provides clearing services for the trading of certain futures and cleared OTC contracts in our markets. We cannot offer our futures and cleared OTC products without clearing services, and any delay in commencing our European clearing operations at ICE Clear Europe could result in a disruption to our business or materially and adversely affect our financial condition and results of operations.
 
On July 18, 2007, we provided LCH.Clearnet with written notice of our intent to terminate our contractual arrangements pursuant to which LCH.Clearnet currently provides clearing services to us for all energy futures contracts and cleared OTC contracts traded in our markets. As provided in our notice of termination, these services will terminate on a mutually agreed upon date or in July 2008.
 
As previously announced, we intend to expand our clearing operations globally by establishing a wholly-owned clearing house in Europe, to be named ICE Clear Europe, through which we intend to clear our energy futures contracts and cleared OTC contracts. The successful establishment of ICE Clear Europe is subject to a number of risks and uncertainties, including obtaining appropriate regulatory approvals in the U.K., building out or procuring appropriate clearing house technology and integrating that technology with ICE Futures Europe and our OTC business, and ultimately the acceptance of the clearing house by FCMs and our trading participants who will be the users of the clearing house. In addition, our competitors, who for this purpose would include LCH.Clearnet, may attempt to interfere with the transition of clearing to ICE Clear Europe or take advantage of any issues or delays that occur with the clearing transition. In particular, LCH.Clearnet may breach its clearing services agreements with us or attempt to legally challenge portions of the clearing services agreements that we believe obligate LCH.Clearnet to refrain from amalgamating, transferring or permitting credit offset for margin purposes with respect to our contracts or they may attempt to interfere with the transition of customer business to a new clearing house. Further, we may be forced to seek legal action against LCH.Clearnet to enforce our rights under the clearing services agreements, which may disrupt our plans for providing clearing services.
 
We cannot assure you that we will be able to obtain regulatory approval for ICE Clear Europe, that we will execute our business plan in a timely manner or that there will be no issues, whether operationally or due to the actions of competitors, with the transition of clearing to ICE Clear Europe. If our clearing services are delayed, suspended or interrupted, our business, financial condition and results of operations would be materially and adversely affected. For the years ended December 31, 2007, 2006 and 2005, transaction fees generated by our U.K. futures business, which are also referred to as exchange fees, accounted for 31.1%, 39.3% and 36.7%, respectively, of our consolidated revenues.
 
In addition, if ICE Clear Europe, or our existing clearing operations at ICE Clear U.S. or ICE Clear Canada, are not able to provide clearing services relating to our OTC business following the termination of our agreements with LCH.Clearnet, we may be unable to offer clearing services in connection with trading certain OTC contracts in our markets for a considerable period of time. For the years ended December 31, 2007, 2006 and 2005, transaction fees derived from trading in cleared OTC contracts accounted for 29.2%, 38.6% and 37.5%, respectively, of our consolidated revenues. Our cleared OTC contracts have been a significant component of our business, and accounted for 69.3%, 71.8% and 69.3% of revenues, net of the


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Table of Contents

intersegment fees, generated by our OTC business for the years ended December 31, 2007, 2006 and 2005, respectively.
 
A
decline in the production of commodities traded in our markets
could reduce our liquidity and adversely affect our revenues and
profitability.



 



We derived 84.3%, 86.1% and 86.9% of our consolidated revenues
for the years ended December 31, 2007, 2006 and 2005,
respectively, from exchange fees and commission fees generated
from trading in commodity products in our futures and OTC
markets. The volume of contracts traded in the futures and OTC
markets for any specific commodity tends to be a multiple of the
physical production of that commodity. If the physical supply or
production of any commodity declines, market participants could
become less willing to trade in contracts based on that
commodity. For example, ICE Brent Crude futures contract has
been subject to this risk as production of Brent crude oil
peaked in 1984 and began steadily falling in subsequent years.
We, in consultation with market participants, altered the
mechanism for settlement of ICE Brent Crude futures contract to
a mechanism based on the Brent/Forties/Oseberg North Sea oil
fields, known as the BFO Index, to ensure that the commodity
prices on which its settlement price is based reflect a large
enough pool of traders and trading activity so as to be less
susceptible to manipulation. Market participants that trade in
ICE Brent





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Table of Contents






Crude futures contract may determine in the future, however,
that additional underlying commodity products need to be
considered in the settlement of that contract or that the
settlement mechanism is not credible.


 



Exchange fees earned from trading in ICE Brent Crude futures
contract accounted for 47.6%, 50.5% and 68.8% of our total
revenues from our energy futures business, net of intersegment
fees, for the years ended December 31, 2007, 2006 and 2005,
respectively, or 15.2%, 20.4% and 26.5% of our consolidated
revenues for the years ended December 31, 2007, 2006 and
2005, respectively. Any uncertainty concerning the settlement of
ICE Brent Crude futures contract, or a decline in the physical
supply or production of any other commodity on which our trading
products are based could result in a decline in trading volumes
in our markets, adversely affecting our revenues and
profitability.


 




In
connection with our strategy to form a wholly-owned European
clearing house, we served notice to terminate our clearing
arrangements with LCH.Clearnet, which currently provides
clearing services for the trading of certain futures and cleared
OTC contracts in our markets. We cannot offer our futures and
cleared OTC products without clearing services, and any delay in
commencing our European clearing operations at ICE Clear Europe
could result in a disruption to our business or materially and
adversely affect our financial condition and results of
operations.



 



On July 18, 2007, we provided LCH.Clearnet with written
notice of our intent to terminate our contractual arrangements
pursuant to which LCH.Clearnet currently provides clearing
services to us for all energy futures contracts and cleared OTC
contracts traded in our markets. As provided in our notice of
termination, these services will terminate on a mutually agreed
upon date or in July 2008.


 



As previously announced, we intend to expand our clearing
operations globally by establishing a wholly-owned clearing
house in Europe, to be named ICE Clear Europe, through which we
intend to clear our energy futures contracts and cleared OTC
contracts. The successful establishment of ICE Clear Europe is
subject to a number of risks and uncertainties, including
obtaining appropriate regulatory approvals in the U.K., building
out or procuring appropriate clearing house technology and
integrating that technology with ICE Futures Europe and our OTC
business, and ultimately the acceptance of the clearing house by
FCMs and our trading participants who will be the users of the
clearing house. In addition, our competitors, who for this
purpose would include LCH.Clearnet, may attempt to interfere
with the transition of clearing to ICE Clear Europe or take
advantage of any issues or delays that occur with the clearing
transition. In particular, LCH.Clearnet may breach its clearing
services agreements with us or attempt to legally challenge
portions of the clearing services agreements that we believe
obligate LCH.Clearnet to refrain from amalgamating, transferring
or permitting credit offset for margin purposes with respect to
our contracts or they may attempt to interfere with the
transition of customer business to a new clearing house.
Further, we may be forced to seek legal action against
LCH.Clearnet to enforce our rights under the clearing services
agreements, which may disrupt our plans for providing clearing
services.


 



We cannot assure you that we will be able to obtain regulatory
approval for ICE Clear Europe, that we will execute our business
plan in a timely manner or that there will be no issues, whether
operationally or due to the actions of competitors, with the
transition of clearing to ICE Clear Europe. If our clearing
services are delayed, suspended or interrupted, our business,
financial condition and results of operations would be
materially and adversely affected. For the years ended
December 31, 2007, 2006 and 2005, transaction fees
generated by our U.K. futures business, which are also referred
to as exchange fees, accounted for 31.1%, 39.3% and 36.7%,
respectively, of our consolidated revenues.


 



In addition, if ICE Clear Europe, or our existing clearing
operations at ICE Clear U.S. or ICE Clear Canada, are not
able to provide clearing services relating to our OTC business
following the termination of our agreements with LCH.Clearnet,
we may be unable to offer clearing services in connection with
trading certain OTC contracts in our markets for a considerable
period of time. For the years ended December 31, 2007, 2006
and 2005, transaction fees derived from trading in cleared OTC
contracts accounted for 29.2%, 38.6% and 37.5%, respectively, of
our consolidated revenues. Our cleared OTC contracts have been a
significant component of our business, and accounted for 69.3%,
71.8% and 69.3% of revenues, net of the





41





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intersegment fees, generated by our OTC business for the years
ended December 31, 2007, 2006 and 2005, respectively.


 




This excerpt taken from the ICE 10-K filed Feb 26, 2007.
A decline in the production of commodities traded in our markets could reduce our liquidity and adversely affect our revenues and profitability.
 
We derived 86.1%, 86.9% and 82.1% of our consolidated revenues for the years ended December 31, 2006, 2005 and 2004, respectively, from exchange fees and commission fees generated from trading in commodity products in our energy futures and OTC markets. The volume of contracts traded in the futures and OTC markets for any specific commodity tends to be a multiple of the physical production of that commodity. If the physical supply or production of any commodity declines, market participants could become less willing to trade in contracts based on that commodity. For example, ICE Brent Crude futures contract has been subject to


25


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this risk as production of Brent crude oil peaked in 1984 and began steadily falling in subsequent years. We, in consultation with market participants, altered the mechanism for settlement of ICE Brent Crude futures contract to a mechanism based on the Brent/Forties/Oseberg North Sea oil fields, known as the BFO Index, to ensure that the commodity prices on which its settlement price is based reflect a large enough pool of traders and trading activity so as to be less susceptible to manipulation. Market participants that trade in ICE Brent Crude futures contract may determine in the future, however, that additional underlying commodity products need to be considered in the settlement of that contract or that the settlement mechanism is not credible. Exchange fees earned from trading in ICE Brent Crude futures contract accounted for 50.5%, 68.8% and 65.3% of our total revenues from our energy futures business, net of intersegment fees, for the years ended December 31, 2006, 2005 and 2004, respectively, or 20.4%, 26.5% and 29.7% of our consolidated revenues for the years ended December 31, 2006, 2005 and 2004, respectively. Any uncertainty concerning the settlement of ICE Brent Crude futures contract, or a decline in the physical supply or production of any other commodity on which our trading products are based, including agricultural commodities underlying NYBOT’s core products, could result in a decline in trading volumes in our markets, adversely affecting our revenues and profitability.
 
This excerpt taken from the ICE 10-K filed Mar 10, 2006.
A decline in the production of commodities traded in our markets could reduce our liquidity and adversely affect our revenues and profitability.
 
We derived 86.9%, 82.1% and 79.1% of our consolidated revenues for the years ended December 31, 2005, 2004 and 2003, respectively, from exchange fees and commission fees generated from trading in commodity products in our futures and OTC markets. The volume of contracts traded in the futures and OTC markets for any specific commodity tends to be a multiple of the physical production of that commodity. If


31


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the physical supply or production of any commodity declines, our participants could become less willing to trade in contracts based on that commodity. For example, the IPE Brent Crude futures contract has been subject to this risk as production of Brent crude oil peaked in 1984 and began steadily falling in subsequent years. We, in consultation with market participants, altered the mechanism for settlement of the IPE Brent Crude futures contract to a mechanism based on the Brent/ Forties/Oseberg North Sea oil fields, known as the BFO Index, to ensure that the commodity prices on which its settlement price is based reflect a large enough pool of traders and trading activity so as to be less susceptible to manipulation. Market participants that trade in the IPE Brent Crude futures contract may determine in the future, however, that additional underlying commodity products need to be considered in the settlement of that contract or that the settlement mechanism is not credible. The United Kingdom is currently planning changes to the tax regime in relation to BFO trading which could potentially have an adverse impact on the level of trading in the BFO forwards market. Exchange fees earned from trading in the IPE Brent Crude futures contract accounted for 68.8%, 65.3% and 66.6% of our total revenues from our futures business, net of intersegment fees, for the years ended December 31, 2005, 2004 and 2003, respectively, or 26.5%, 29.7% and 30.4% of our consolidated revenues for the years ended December 31, 2005, 2004 and 2003, respectively. Any uncertainty concerning the settlement of the IPE Brent Crude futures contract, or a decline in the physical supply or production of any other commodity, could result in a decline in trading volumes in our markets, adversely affecting our revenues and profitability.
 
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