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The Intercontinental Exchange (NYSE: ICE), founded to drive futures markets in 1999, spent $ 11 billion on NYSE Euronext in 2013 and then spun off European markets next year. The IPO was worth $ 1.2 billion.
Since then, ICE has been the listed stock exchange. ICE’s value has doubled, but Nasdaq (NASDAQ: NDAQ) increases by 169%. Euronext (OTCMKTS: EUXTF), ICE spinoff, has been the star of the show, up by as much as 269%.
But if you are considering going into this relative find, there are more problems ahead. Because the man who brought the exchange to Atlanta, Jeff Sprecher, has also bought himself a huge political risk. That risk may still force ICE to sell its price asset.
What Sprecher did
It is fitting that Atlanta now owns the NYSE. Atlanta is the premier back office for the credit card industry. Running a stock market today is a bit like handling credit card transactions.
Sprecher understood this from the beginning. The low cost of processing real-time transactions, when the software is running, is behind the growth of ICE. When the stock market was forced to close its “trading floor” early this year due to the new coronavirus, nothing happened. The floor had become nothing more than a TV scene that sat years earlier. Everyone can do well without it.
But that change, which all other stock exchanges have since copied, was Sprechers’ strange trick. ICE has nothing more up its sleeve.
ICE shares opened for trading on April 17 at approximately $ 90 per share, a market capitalization of close to $ 49 billion. It is by far the largest company in the field, with Nasdaq having a market capitalization of only $ 17 billion. But it is an underperforming asset, not worth an investor’s money. It has a price-to-earnings ratio of almost 25, compared to almost 30 for Visa (NYSE: V). The dividend, only 30 cents per share, gives a weak 1.4%.
Then there is the political problem.
Icarus in Congress
On January 24, the Senate Health Committee received a private review of the upcoming pandemic. Over the next few weeks, as President Donald Trump‘s administration downplayed the threat, the newest member and her husband placed 29 stock transactions, almost all selling orders. Among the few purchases was Citrix (NASDAQ: CTXS), whose software helps people work from home.
The junior member was Kelly Loeffler, a Republican in Georgia. She’s Jeff Sprecher’s wife. Loeffler denies any wrongdoing, but in April the pair moved their holdings to exchange-traded funds (ETFs). A new vote has led to her being beaten by her Republican primary opponent, Rep. Doug Collins.
It’s getting worse. Among the shares that Sprecher sold, after the briefing, was the ICE share itself. Before the virus hit, the pair sold $ 19 million worth of ICE shares, priced at $ 89 to $ 92. On March 23, ICE closed below $ 67.
So far, the only legal result has been a warning from the US Securities and Exchange Commission. But if Republicans lose the election in November, I expect that to change.
The conclusion on ICE stocks
A Democratic president and congressman could easily decide to set an example for Jeff Sprecher and ICE. It is possible to demand that ICE divest the stock exchange, or that Sprecher and Loeffler leave the company.
Before he became senator, Loeffler Bakkt pressed. This was originally a bitcoin futures market. Now it is being pushed as an app to move seamlessly between “fiat” currencies and digital currencies. The website talks about things like buying coffee with bitcoin and getting game rewards.
It’s a long way to fall, from the futures market to a coffee wallet. But it may be the future of Sprecher and the best outcome for ICE shareholders.
Dana Blankenhorn has been a finance and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. At the time of writing, he did not own any of the companies mentioned in this story.