Exclusive Online Only ContentICE To Purchase OTC Energy Derivatives Platform
February 1, 2008
IntercontinentalExchange (ICE) said Thursday that it has entered into a definitive agreement to purchase energy derivatives technology company YellowJacket Software for an undisclosed sum. Following the deal’s completion, anticipated in February, YellowJacket will operate as a subsidiary of the Atlanta-based energy and soft commodity exchange operator.
New York-based YellowJacket, founded in 2002, operates the YJ Energy platform, a peer-to-peer trading network for over-the-counter natural gas, power, crude oil and weather products. It has a particularly strong presence in weather derivatives, 80 percent of which are traded on YJ Energy, according to YellowJacket.
“Our proven platform supports the negotiation of any energy transaction, any complexity of contract, with any qualified counterparty,” said YellowJacket co-founder and president Jacob Pechenik. “We will continue to grow the distribution of our technology and liquidity on our network by leveraging ICE’s vast global distribution, asset-class diversity and customer base.” He added in an interview, “YellowJacket is now part of a network and we are going to get that network effect.”
The privately held company’s two-dozen employees will remain in New York and no staffing changes are planned. Sandler O’Neill & Partners advised YellowJacket on the transaction.
“YellowJacket brings an innovative application that is uniquely positioned to meet the demand for electronic efficiencies in the OTC markets where complex options or structured products are involved,” ICE chairman and CEO Jeffrey Sprecher said in a statement. “We see many applications of this technology beyond the energy and weather categories, particularly when coupled with ICE’s expanding clearing capabilities.”
When it bought the New York Board of Trade in January 2007, ICE acquired New York Clearing Corp., now ICE Clear, allowing the exchange to take ownership of its U.S. clearing business. By the third quarter this year, it expects to open a London clearinghouse, ICE Clear Europe, bringing under ICE’s control contracts currently cleared by LCH.Clearnet. Last year ICE signed a trading and clearing agreement with the Natural Gas Exchange of Calgary, owned by Toronto Stock Exchange parent TSX Group.
In September, ICE finalized its purchase of Winnipeg Holdings, parent of the Winnipeg Commodity Exchange and Canadian Climate Exchange. Two months earlier, it acquired the commodity trading business of Houston-based ChemConnect, an electronic marketplace for natural gas liquids and chemicals. On Jan. 18, ICE relocated its trade matching engine for OTC and futures products to its Chicago data center.
Pechenik called the latest deal “synergistic,” adding that, while YellowJacket will continue to create and develop new products, the companies “will be working together on a number of joint initiatives based on client and market demand.” Pechenik’s title following the acquisition has not been determined.
On Jan. 16, YellowJacket launched a service for weather market participants in partnership with Newark, Calif.-based catastrophic risk specialist Risk Management Solutions and MDA EarthSat Weather, a Rockville, Md.-based weather consultancy. The product, the Weather Derivatives Starter, includes a trading and communications platform, weather forecasting and risk management tools, said the companies.
“The weather derivatives market is growing rapidly as energy companies, financial firms and others use these instruments to drive trading volumes and hedge risk against weather exposure,” Pechenik said at the time. “The Starter Kit addresses the specific need for hedge funds, investment banks and others to get started by offering the trading tools and data required to begin trading these instruments.”
