Seven large U.S. and European financial institutions have joined forces to launch the IntercontinentalExchange, an Internet-based electronic marketplace for over-the-counter commodity products. The platform is completed and is in the process of incorporating additional servers for high volumes. The exchange will initially trade petroleum products, including crude oil, fuel oil, jet fuel, heating oil and gasoline, as well as silver and gold. The IntercontinentalExchange is scheduled to go live this summer, with initial liquidity being provided by equity partners BP Amoco, Deutsche Bank, Goldman Sachs, Morgan Stanley Dean Witter, Royal Dutch/Shell Group, Societe Generale and the Totalfina Elf Group.
"The seven companies really provide a lot of liquidity within the broad spectrum of petroleum and precious metals," says Jeffrey Sprecher, CEO of the IntercontinentalExchange and former CEO of Continental Power Exchange, the company that developed the trading platform. "This was put together because the current market is highly fragmented and inefficient because of its telephone-based trading. There are tremendous efficiencies to be gained by putting all of the liquidity on a common trading platform where people can get access to the data in real time."
Although the exchange will begin trading in petroleum and precious metals, Sprecher says the system is capable of handling any type of commodity. "It's a trading system that doesn't really care what product is traded across it," he adds. "It's a broadcast vehicle that publishes information in real time and organizes it in a way that the user can specify what they want to see on the screen."
The IntercontinentalExchange will be accessible either directly through an Internet browser or via downloadable exchange-supplied application. When a user first registers with the exchange, they must answer questions in the so-called portfolio manager, filling in the specific areas in which they will be trading and the counterparties with which they wish to trade. "You'll see a listing of all the companies that are registered to do business on the specific products and you can filter the companies by indicating who you will do business with and under what terms," says Sprecher. He adds that then only the pre-selected counterparty bids and offers will show up on the user's screen.
The trading system shows the entire depth of the market for each individual user according to their specifications for products and counterparties, with the best bids and offers anonymously listed in order from high to low. An interested party can click on the bid or offer and will then fill out a deal ticket. "A screen pops up that gives you all the details to each party on the transaction---the time it came in, what it was quoted at, what the product is," explains Sprecher. Because both parties have already agreed to conditions of trading between them, the trade is then processed according to each users terms.
The IntercontinentalExchange runs on two databases---one relational and one object oriented---which are connected through CORBA middleware. "We use the two because the object-oriented data base has better capabilities for handling the live data that's published onto the screen and the relational database has better capabilities for long-term storage and report writing. But the two databases keep the same data," says Sprecher.
He adds that the system runs on Sun Enterprise Servers and was built completely in-house with technology from the former Continental Power Exchange. In the future, Sprecher says the system could be expanded into other commodities such as natural gas, electricity, weather and possibly bandwidth.