Speaker 1:
From the Library of the New York Stock Exchange, at the corner of Wall and Broad Streets in New York City, you're Inside the ICE Caps, our podcast from Intercontinental Exchange on markets, leadership, and vision in global business. The dream drivers that have made the NYSE an indispensable institution for global growth for more than 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism. Right here, right now, at the NYSE, and at NYSE's 12 exchanges and seven clearing houses around the world. Now here's your host, Josh King, head of communications at Intercontinental Exchange.
Josh King:
For you users who've been with us since the start of our conversations here in the Library of the New York Stock Exchange, you might remember me explaining why we called it the ICE House. Let me take you back five years. It was then that Intercontinental Exchange, NYSE ticker symbol ICE brashly bought the NYSE. As Nathaniel Popper wrote in the New York Times, "In one shot, price tag $8.2 billion. Not bad for a company that had only been around since 2000. One that went public on this very exchange on November 16, 2005." Ringing the opening bell that day was Jeff Sprecher, ICE's founder, chairman, and chief executive officer, titles he still holds today as he sits across from me in the Library at the Big Board Club in this venerable building.
Josh King:
There's a lot of lore around Jeff and ICE, far more than we'll cover in the next few minutes. Many stories abound about how he built ICE from a little known commodities exchange in Atlanta that he purchased for a dollar, turning it into a global Fortune 500 company, one that two decades later has a market cap of over $40 billion. Maybe the original question is this. Did it really only cost him a dollar? We'll find out right after this.
Speaker 4:
Inside the ICE House was brought to you this week by Norwegian Cruise Line, NYSE listed NCLH. Norwegian Cruise Lines' 16th ship, Norwegian Bliss, will begin cruising Alaska and the Caribbean seasonally in June 2018. For more information, visit www.ncl.com.
Josh King:
Here's a title that Jeffrey Sprecher doesn't often flaunt. The 25th chairman in the 225 year history of the New York Stock Exchange. Those who followed his trajector know him as the founder of ICE, Intercontinental Exchange, based in Atlanta, Georgia. But wind the clock back several decades and you'll find a University of Wisconsin-trained chemical engineer, a doer who joined TRAIN, the manufacturer of heating and air conditioning systems, and headed west to California just as the state was deregulating the energy sector. Heady days back then. So many opaque trading processes to disrupt and make transparent. His path brought him to Western Power Group as its president, and then, in 1997, that defining moment when he plunked down a buck and bought Continental Power Exchange, forming it into Intercontinental Exchange in 2000. Welcome, Jeff, to the program.
Jeff Sprecher:
Thank you, Josh.
Josh King:
Nice play you've got here.
Jeff Sprecher:
Yeah, you know, it is interesting. I suspect I'm the only chairman of the New York Stock Exchange that never has traded, never has worked at a bank, never has lived in New York, never has worked, in any way, shape, or form on Wall Street. So, I think I'm part of a new generation, I guess, of people that are in financial services that didn't grow up in financial services.
Josh King:
I mean, that's one thing that Tom Farley mentioned to me, chatting about a conversation we would have, which is, the only common denominator about all the trading systems you've disrupted is that you've had very little if any knowledge about them when you got into them.
Jeff Sprecher:
Yeah. I think, as an entrepreneur, if you go into an industry that you don't know a lot about, it forces you to ask a lot of questions and to take a fresh perspective, because you have no other perspective. That's what we've done at ICE for the last 20 years. I'm surrounded by other people, by the way, that never worked on Wall Street, never worked in a bank, never traded, and yet we're probably the largest exchange group in the world by revenue. But it's a lot of people asking our customers a lot of questions.
Josh King:
Tom said that when you were looking at one of the acquisitions back in the early aughts, you actually had to Google Wikipedia for credit-default swaps before you went into that business?
Jeff Sprecher:
Yeah. I have this distinct recollection of flying back from London and reading the Financial Times, which is a British financial newspaper, and reading about credit-default swaps. I'd never heard about them before. And there was a pretty in-depth article, because the FT tends to cover trading more than many papers. I remember thinking, "Well, that's an interesting product." I just started paying attention to it. In fact, I would tear out articles as I would read them and stack them up on my desk. And as you probably are aware today, we're the larger clearer of credit-default swaps.
Josh King:
96% of the world's flow, I think.
Jeff Sprecher:
Exactly. And it came about after the financial crisis, when everybody was saying there were all these toxic assets on the books of the banks and the financial system wouldn't recover until those were removed. I remember asking all my colleagues, "Could we do something to remove them?" We ended up taking about, I believe it was about $50 trillion worth of assets off the books of the banks. Putting them into a company that we started, and hiring a whole bunch of quantitative research people to figure out what these were and how much they were worth and what we should charge people to take them.
Josh King:
Big relief for everybody involved in the process.
Jeff Sprecher:
It worked for us, it worked for the banks, and it really was just a big technical problem that we rolled up our sleeves and decided to try to solve.
Josh King:
One of your first trips to New York, maybe to visit your sister's apartment, you get into a taxi and said, "Well, stranger, what brings you to this concrete hellhole?"
Jeff Sprecher:
I came to visit my sister. Somebody told me that I should go meet a guy at Goldman Sachs and meet another guy at Morgan Stanley. Those were some big name, they still are, but they were some very big name firms. Somehow I weaseled my way in to have these meetings. By the way, New York was a very different city then. The fact that this cab driver turned around and called it a concrete hellhole, which scared the heck out of me, by the way, because I had never been to the city.
Josh King:
You're a kid from Wisconsin.
Jeff Sprecher:
I was definitely from a small town. Anyway, today you jump in a shared ride car and hit an app and have somebody who's very friendly and the city is gracious and welcoming. The whole environment is different. But needless to say, those two meetings turned out to go very, very well. Those two firms were interested in what we were doing. Ultimately, both firms agreed to try our product and then ultimately back our efforts. That one trip, and those two firms, made a big difference in my life.
Josh King:
Let's pop the myth, if we can. Did you really buy Continental Power Exchange for one dollar?
Jeff Sprecher:
You know, I'm glad you asked me that, because-
Josh King:
Pete. Pete thought I should ask that question.
Jeff Sprecher:
Yeah, well, Pete's right, because I don't remember if I paid $1 or $1,000. It widely is reported that I paid a $1, but I'm always embarrassed by that because I'm an engineer and I like facts. The fact may actually be that I paid $1,000. The point was-
Josh King:
Nevertheless, it was a big bargain.
Jeff Sprecher:
I bought it over a weekend. It was a failing company. I had my longtime lawyer... I'm a serial entrepreneur, and I had a lawyer that I'd worked with for years. He told me not to do it. He said, "You don't know what liabilities are in that company. You haven't had a chance to do any diligence on the company." And I said, "I mean, I'm either going to lose like $1 or $1,000. What is my issue?" Anyway, there was so much of the conversation was about the risks in the company and not what I was paying for the company. It was a nominal... I tend to think it was $1,000, only because I think the seller wouldn't have wanted to be embarrassed enough to take $1. But it actually could have been $1.
Josh King:
And yet, $1 or $1,000... We'll get down to the bottom of this. It was still a huge leap. I mean, you had life going good in California. You're trading Beverly Hills for Buckhead. You said, I think, in one of your articles, that your California life was the ticket to the beach and palm trees and girls on roller skates. That's what I want to do in life. And you decide, "I'm done with this."
Jeff Sprecher:
I didn't really decide that. I would get up every morning in California very early, and I would get on the telephone with my colleagues in this new company in Atlanta, and we'd talk, and then I'd go take a shower and go to my other job, another company that I had started, that you'd mentioned, called Western Power Group, where I was for 17 years by the way. That was a very successful company and I thought I'd retire with it. But I couldn't believe that this little thing that I had bought in Atlanta kept doing better. I really enjoyed the people and the camaraderie and the telephones calls, and over time it kind of pulled me out to Atlanta. I had cut a deal with a small, no-name hotel that charged me, I think it was $42 a night, and kept my bag there, so that I didn't have to lug back and forth. So I'd go back and forth and stay in this hotel. It was really a motel, honestly. At some point, I was just in Atlanta so much that I realized one day that I really was working there and essentially living there.
Josh King:
William [Prentiss 00:56:53], who you worked with or for at Western Power, recognized that when you were with him, you had already mastered the art of creative destruction, looking at processes that exist as they are now and thinking of how to deconstruct them and build them up better. Is that what you brought to Atlanta?
Jeff Sprecher:
Yeah. I'm an engineer, so I'm one of those kids that, when I got something new, I would take it apart to see how it worked and I'd put it back together, usually incorrectly, but I like to take things apart. Mentally, when I see businesses... I'm a guy that, if you meet me and you're at a cocktail party and you start talking about your company, I'm going to ask you a whole bunch of questions and then, inevitable, by the end of the company I'm going to tell you how you should run it. I'll never forget I got to meet the conductor of the Atlanta Symphony at a dinner party. I sat next to him. I had never been to the Atlanta Symphony. I had never seen this conductor. By the end of it, I was telling him what I would do if I was running the Atlanta Symphony. And it was a long ride home with my wife, who happened to be on the board of the Atlanta Symphony. So my mind just kind of works toward problem solving, and it's turned to be good in the businesses that I've been in.
Josh King:
Trabue Bland was telling me, in your early days you wondered if a guy that you had just hired would work out, because he went out to an office supply store and had the temerity to buy a three-hole punch.
Jeff Sprecher:
And not just any three hole punch. He bought that really good that's really thick and meaty, that costs $20 more than the cheap one. Where today, it seems like there's a lot of money available to many start-up companies, for most of my life there wasn't money available, and so you had to do more with less. You had to be creative. You couldn't hire the next person until, really, the whole company was about to fall over because that person wasn't there. Today people go out and hire a whole cadre of people before they really even have a business. So I just was wired differently, but it's partly because of the environment where I've built companies in.
Josh King:
I heard you took a Barbie digital camera to take pictures of computer equipment in your office, so that they could be posted on eBay to raise more capital.
Jeff Sprecher:
Exactly right. When I bought this failing company, it had a whole closet full of stuff. None of us knew what it was, but it looked like it was expensive and valuable. It was networking equipment. My assistant had a young daughter who had a Barbie digital camera. We brought it in. We took everything out, we merchandised it, set it all up, took photos of it, put it on eBay with kind of nondescript descriptions, because we didn't actually know what it was. And sold it. Yeah. I mean, look... When you're starting a company, and I have tremendous empathy for small businesses, you got to be creative and figure out how to make payroll and how to get by. That was just one of a million things that we did to squeak through.
Josh King:
You also have to know what you're actually going to disrupt. If you go back to the early years of this millennium, 2000, 2001, California, electricity crisis crippling the state. I want to hear a clip that brings us back to that time and have you tell us what you did in response.
Ted Koppel:
Not that long ago, it would have seemed like a bad joke, but the folks who control the flow of power into and around the state of California aren't kidding. They would like Californians to watch the Super Bowl next Sunday in large groups. Yes, things are just that bad. They're trying to reduce the number of television sets in use next Sunday because the supply of electricity in California is so vulnerable to any increase in demand, that too many folks watching the Super Bowl alone, and using that many more electrical appliances at halftime, even that could overtax the system.
Josh King:
That's Ted Koppel, Jeff. January 2001. The Ravens and the Giants about to head to the big game. Are you watching the Super Bowl in a group?
Jeff Sprecher:
You know, I was thinking a lot about that in 2001 because I vehemently disagreed with a number of decisions that the California government made, to how to regulate the electric power industry, to the point that I said, "I've got to start an exchange where buyers and sellers can come together and buy power." And literally, the state of California passed a law that outlawed anyone using my exchange. So that angered me enough that I said, "I've got to do this outside of California in the other 49 states, because if we don't, the other states may adopt this flawed legislation that California has." And I'm proud to say, today, that most of the power that moves around California is traded on our exchange. Ultimately, the state almost bankrupted itself because of this flawed regulation. People turned to my company for the solution, because we had built it in Atlanta, outside of the state of California.
Josh King:
Everyone's success, Jeff, can be tracked back to good timing, vision, which you just talked about, or a lucky break. I want to play a clip and have you share if that break might have been yours.
Speaker 5:
The late '90s, business appeared to be booming for one of the world's largest energy companies, Houston based Enron, but it all started to crumble in August of 2001.
Speaker 6:
They had created numerous off-balance-sheet type of entities that investors were not aware to hide poor results from investors.
Speaker 5:
Federal investigators launched a massive probe. The findings showed corporate bigwigs inflated Enron's earnings by several hundred million dollars.
Josh King:
Jeff, Chuck Vice told me that, as you're going from that early days in 2001 to later in 2001, you actually thought about doing a deal with Enron but decided to take another path.
Jeff Sprecher:
It wasn't that good, actually. We had this idea that you should be able to buy and sell electric power on an exchange and not from your local utility company. We went to Enron and pitched this idea, and at that time Enron was the largest energy company in the United States-
Josh King:
The smartest guys in the room.
Jeff Sprecher:
So it made sense that you would go talk to them. And we had meeting after meeting after meeting, where we started to show them what we were building and how we were doing it, and I met with and know all the people that you read about today that went to prison or got into trouble. They were all part of these meetings that we were having. I'll never forget, we were in a meeting one day, after probably about a year or a year and a half of having meetings with them, and their technology officer looked up and said, "If you were trying to stream through port 446 using a Microsoft proxy server, how would you get through the firewall?" And I went, "Oh, my God. These guys are actually building what we've been talking to them about, that we're building." Lo and behold, we really incentivized them to build a thing called Enron Online. They launched it. We had a moment of truth in our company where we looked at each other and said, "Did we just die? Or can we survive this?"
Josh King:
I mean, you watch the documentary, the Smartest Guys in the Room, and that Enron Online was their last gasp.
Jeff Sprecher:
It was. It was, if you've never heard about it, it was a web-based platform where you would buy and sell energy from Enron. We had built a platform where you would buy and sell energy from a mixed group of people. So we were a neutral counterparty. They were specifically for their own commerce. When they failed, the market said, "We need a neutral counterparty." We were standing there in the right place at the right time.
Jeff Sprecher:
When I talk to entrepreneurs, by the way, I tell people all the time that you do need luck in business, there's no question, but to a certain degree, you have to prepared to accept the luck. You have to be in the moment. When the opportunity presents itself, you have to be wiling to seize it. It's amazing how many people I meet that, the opportunities there, they may not recognize it, or, more troubling as an entrepreneur, is that they may not seize it. I was living in Beverly Hills, driving a BMW and going out to fussy restaurants, and I thought, as you mentioned, that I was on top of the world. I didn't really want to live in Atlanta. I'd never been to Atlanta. But the opportunity presented itself. One of the great things that I've done in my life is allowed that opportunity to take me there and follow it. Because my life is much richer and better and my friends are more interesting and my life is more interesting as a result of not being wedded to one particular vision.
Josh King:
Opportunities presenting itself, Jeff, those interested parties, those businesses that were trading for themselves, Goldman, Morgan Stanley, Royal Dutch, Exxon Mobile, the opportunity would be, hey, if you guys take 90% of the equity in this business and give us your order flow, we will do great things together. Huge risk. Scott Hill told me you had to convince them, at the same time you're doing payroll, we'll do your personal checks.
Jeff Sprecher:
I was the 100% owner of the company and I gave away, actually, 80% of the equity to the customers in exchange for a commitment that they would try it and use it. Again, my philosophy is that I cared about the company doing well, and doing the right things for the company, and I figured my own personal stake, or net worth, or reward that came out of it, would work out just fine as long as the company did well. I meet a lot of entrepreneurs today, they give me business plans, and the first thing they say is, "Well, I'll own 80% of the company and I'll control it." And then I always ask them, "What if you're not doing a good job and the company needs to fire you?" And they like to say, "Well, they can't." I say, "Well, then, if you're the wrong person for the company, and all of us at points in time may be in the wrong place..." You can see that these entrepreneurs say it's about me. What is it that you need that is better for you than is better for the company. And I always say, "You're asking me to invest not in me. I'm investing in your company."
Jeff Sprecher:
So I just have an attitude that, do the right thing for the business, and it'll all work out for the people that are involved in the business, whether you own it or just work there. And I fundamentally believe that today. Certainly that advice has worked for me.
Josh King:
It started out working very well for ICE very early on. The next year, after the deal was done, I think you completed your first acquisition when you purchased the London-based International Petroleum Exchange. That gave you a foothold in Europe. It allowed ICE to offer energy futures and to secure the world's oil benchmark, which, we all know now, is Brent. How were you received in England on those first forays, versus some of those trips to this concrete hellhole in Manhattan?
Jeff Sprecher:
With a lot of skepticism. I was an entrepreneur with a start-up company. Nobody had ever heard of me. Nobody had ever heard of the company. I was trying to buy the leading commodity exchange in Europe. So, I did something that... A piece of advice I also give, which was, there had been an offer made for the company for, I think, $61 million or something of that ilk. Or $67 million, maybe it was. I went in and said, "I'll pay double." And people said, "What?" I said, "I'll pay twice what the last offer was." That was the deal we did. I didn't get the best deal, but I got an iconic business that I knew was poised, if we could merge our efforts and our efforts, would be much bigger than the two apart. To this day, my style, if you look at our track record, and we've done dozens and dozens and dozens of acquisitions of companies, including the iconic New York Stock Exchange, I've never been the low bidder. I've never been in a negotiation, the person that comes in and says, "Well, I need another five cents off the table." I'm usually the one that says, "I'll give you five cents if we can close this deal quickly and make it seamless."
Jeff Sprecher:
My company has never been about some tiny, little, incremental change. It's been about seizing opportunity to make big change, and to make big change, you've got to take big steps, and you can't these little negotiating details get in the way.
Josh King:
Until you acquired the New York Stock Exchange and this building, you were best known for a deal that didn't happen. Here are some sights and sounds from the old open outcry trading pits in the Chicago Board of Trade, and this audio comes from 1993.
Speaker 7:
There's a lot of pushing and shoving. You stand there from 7:15 to 2:00. Guys come out of that pit and they are soaking wet. There's like 10,000 phone lines coming into this building. Person on the other side of the phone will say, "I want to sell 100 bonds." This person will tell the clerk. The guy will turn around and tell the broker, and he executes the trade.
Josh King:
I was watching this documentary last night, Jeff, and I couldn't believe hundreds, probably thousands of people, in the CBOT, all these hand signals, such a human circus going on in Chicago. The business was up for sale. It's March 15, 2007. You're in Boca Raton, Florida. What do you do?
Jeff Sprecher:
We were at an industry convention where the CEOs of all major exchanges around the world were in attendance. I had orchestrated with our bankers and lawyers to slip under the door of the CEO of the Chicago Board of Trade an offer to buy the company. It was a very, very public offer, in the sense that everyone in our industry was all in the same hotel.
Josh King:
In the weeks that ensured, you were trying to make your pitch, I think it's $9.9 billion, an all stock transaction, and you go to Chicago, you get in front of the members of the CBOT. You have quotes like, you want to preserve the proud heritage of the CBOT and carry its legacy forward. I mean, you heard the sound of that trading pit. You're a man who relishes, sort of, efficiency and electronification of these processes. Did you really want to bring that legacy forward?
Jeff Sprecher:
We rented a theater and we invited all these floor traders to come. I got on a stage with my management team, and we stood there and answered questions. There were a lot of hostile and angry questions, in the sense that we were saying we were going to bring the internet to trading and lot of people had grown up, and in fact had generations of their family, grow up on those open outcry floors. They were very threatened by that. You could feel it in the room that day. We decided, and I took questions, and I stood on that stage for hours. We decided not to end the conversation and let everybody defuse and let people talk about it, and talk about, were we the bad guys or were we just the messenger of what is going to happen in the future? We didn't end up with the company, as you infer, but by the end of that, we left with a lot of people that still today write me notes and cards on the holidays and what have you, thanking me for the way we dealt with them. I ended up getting a lot of good relationships out of that.
Josh King:
Moving on, Jeff, from the war for the CBOT, we're nearing the financial meltdown. Your attention is fixed on creating transparent markets for credit-default swaps. We were talking about that earlier with Wikipedia and how you had to get up to speed. You buy Creditechs and the Clearing Corporation, forming what's now known as ICE Clear Credit. You've always had this reputation as a problem-solver. What is the problem that ICE Clear Credit solved?
Jeff Sprecher:
So, what happened was that the credit-default swap business was an over the counter business, so a buyer would sell a credit-default swap to a seller, and then that seller would in turn sell it again to another seller, or excuse me, another buyer, who would then sell it again to another buyer. And so, what we found, when we ultimately got the credit-default swaps into our clearing house, was that the average chain of title, I believe, was 18 different counterparties. The problem with the credit default swap, when it was designed in the past, is that if anybody in that chain bankrupted themselves, the whole chain really fell apart. It's why, when you read these stories about the Fed calling all these bank CEOs into a room and saying, "You must save the peer bank of yours who is a competitor," they all say, "Well, I'm not going to save them. I have no exposure to them." Well, people couldn't see the links of the chain.
Jeff Sprecher:
So what we did is we built a clearing house where we had everybody give us all of their positions, and we broke all the links of the chain and we matched the person who had the first link in the chain and the person who had the last link in the chain together, because they're the true, ultimate buyer and seller, and then we broke all the links that were in between the two of them. I think it was around $60 trillion worth of credit default swaps collapsed down to just a little over $1 trillion, it was like $1.4 trillion as I recall, of actual buys and sells. But you wouldn't know that until you got everybody together and got all the chains in one room and then started cutting links.
Josh King:
I mean, people look back to Dodd-Frank as the legislation that helped move on from the financial crisis, but actually figuring out how to make clearing work was one of the real reasons why were able to advance past 2008.
Jeff Sprecher:
It was, and Dodd-Frank, the financial legislation, at its core, in this derivatives space, requires, in the future, that people use clearing. And it was because of a lot of the successes that we had, leading up to Dodd-Frank, that convinced regulators and legislators that that should be the solution.
Josh King:
So we're now through the financial crisis. It's time to do, for the trading of stocks, what you've done for the trading of commodities and futures. Yankees, it's appropriate that we're talking on opening day, Yankees was the code name for the NYSE, and Braves was the codename for Intercontinental Exchange. Here is CNBC's David Faber on December 20th, 2011.
Speaker 8:
Break it all down.
David Faber:
All right, yeah. Let's go through some of the numbers for you. Of course, the deal itself having been officially announced in the last half hour or so, the boards having signed off at, let's call it about 8:00 AM Eastern Time. My sources tell me, by the way, this all began a couple of months back, when Jeffrey Sprecher, the CEO of ICE, approached Duncan Niederauer, the CEO of the New York Stock Exchange, about a potential deal. We are looking forward to hearing from both men later in the program. As for the deal itself... Well, if you're a New York Stock Exchange shareholder, you take a look at Mr. Sprecher, who, by the way, has built this company just over the last decade really, there it is. 33.12. 8.2 billion total consideration. Most of it in stock. Points 1703. Now, there's going to be an election here. It can get somewhat confusing. But let's just leave it to the basics. 1/3, 2/3, 2/3 stock, 1/3 cash. You see the cash component there. 36% of the combined company will be controlled by current New York Stock Exchange shareholders, so...
Josh King:
Breaking news, $8.2 billion. David Faber breathless. You just couldn't stop, Jeff.
Jeff Sprecher:
It's amazing to hear these big numbers, by the way. I mean, we talked earlier in this podcast about the fact I used a Barbie camera to take photos of pieces of equipment, to try to sell them for tens and twenties. Now we've got a lot of zeros behind those kinds of numbers in the company.
Josh King:
What was the attraction of getting this building, and the assets, innovation, history, and business underneath its ceiling?
Jeff Sprecher:
I found that what works for us is to buy two kinds of companies. You either buy a young company that has a lot of growth in front of it, and then you buy it early so that you can harness that growth for your shareholders, or you buy a mature company that has somewhat fallen out of favor, that people take for granted, and you buy that company and you reinvent it. It was really the opportunity to go into the New York Stock Exchange and replace the legacy technology with light, modern, efficient technology and put a new face on it and modernize it and make it relevant again.
Josh King:
I mean, for a person who spent his entire career figuring out how to disrupt, to take some of human failure out of processes, this place is a testament both to that magical mix of human judgment and technological innovation.
Jeff Sprecher:
Yeah. I mean, last year I think we raised something like, maybe, 89% of all tech IPO capital. 20 years ago, the NYSE was nowhere with tech entrepreneurs. They went over to our competitor. Today they come to us. It's because of the kinds of investments and things that we've done here, and when we get one on one with a great entrepreneur that's looking to tap into the capital markets, we can really show them that we've got an interesting platform for capital raising.
Josh King:
After the break, our conversation continues with Jeff Sprecher as we move toward ICE's present and future.
Speaker 4:
Norwegian Cruise Line's Norwegian Bliss will feature the largest racetrack at sea, incredible entertainment including the Tony Award-winning musical Jersey Boys, as well as two 180 degree observation lounges perfect for whale-watching in Alaska or taking in sunsets in the Caribbean. To learn more, visit www.ncl.com.
Josh King:
Back now with Jeff Sprecher, the founder, chairman, and chief executive officer of Intercontinental Exchange. Dreamers, innovators, disrupters, is there a common thread? I don't know. We should listen to one, and then get you to opine on what brings them all together after this.
Steve Jobs:
Every once in a while, a revolutionary product comes along that changes everything. Apple has been... Well, first of all, one's very fortunate if you get to work on just one of these in your career. Apple's been very fortunate it's been able to introduce a few of these into the world. 1984, we introduced the Macintosh. It didn't just change Apple. It changed the whole computer industry.
Josh King:
That's 11 years ago, Jeff. January 2007. Steve Jobs about to introduce the iPhone 1. You really had your eye on him from 1984 on, that iconic Super Bowl commercial.
Jeff Sprecher:
Yeah. I never met him, and he wouldn't ever know who I was, but I view him as a mentor. I followed him religiously. We were born one day apart. I didn't realize that until later, but we're both Pisces. I saw a lot of things in him that I copied and emulated that have worked for me and for my company. One of which, by the way, is that Steve Jobs is known for this incredible computer legacy of Apple, but Apple didn't invent a lot of what started that company. He took the idea from others. Bill Gates did the same thing. He didn't write the operating system for Microsoft. They got it from others. I learned that you don't have to be first, and you don't have to be an inventor. You just have to identify the opportunity and execute on it better. There was something about that that then made entrepreneurship accessible to me, because I'm not an inventor and I'm not an intellect. But I certainly can look around and see what other people did and try to do a better job of it.
Josh King:
You also have to create a unique culture. Apple has its unique culture, ICE has its. What are the lessons you got from Jobs or others as from 2000 forward you were trying to create a company that started with a handful of people and now is 5,000 strong?
Jeff Sprecher:
I surrounded myself with really capable people that were self-directed, but wanted to work on a mission as part of a team. You read about Apple and the successful products that come out of Apple, and at the core is that. It's a group of people, not a single person. A group of people that work together, share idea, and then you had Steve Jobs, who really was a curator with impeccable taste, artistic taste, really, that could then help edit those ideas down to something that we all have come to know and respect in the product. And that's the quality he had that I try to emulate, which is help, as the CEO of this company, to edit what we do, but not to stifle what we do.
Josh King:
There are so many similarities you have with Steve Jobs, but also you diverge in many important ways. He was a college dropout. You're a chemical engineer from the University of Wisconsin. He's an adoptee, never knew his natural father. You have a grandfather and a father who nurtured you as you were growing up in Indiana and Wisconsin. What values did you get from the Midwest in your initial years, in growing up, and your engineering, that you bring into the culture of ICE?
Jeff Sprecher:
Well, I think one thing that we had in common was that I started a company because I wanted to be independent. When I moved from being a young adult into an adult, I had this fear that I would have to go ask my parents to borrow money. Looking at Steve Jobs, and again, I'm looking at him from afar, but he was not only a dropout, but he was very independent. And in that sense, while we had very different upbringings, I think we had this kind of internal drive of independence, that, at least in the early days, is a catalyst for taking risk.
Josh King:
And yet, still, your grandfather, Dave Willingham, was a pillar in his community, and you took a lot of lessons from him.
Jeff Sprecher:
Yeah. My grandfather ran a cement factory in a small town where the entire town worked at that factory, and where the town owned the housing, owned the post office, owned the stores that were in the town. I mean, it was a vestige of-
Josh King:
Empire Falls.
Jeff Sprecher:
Yeah, another era. But my grandfather was not only the boss, but he was the mayor. When somebody got into trouble and the police grabbed him, what have you, he was the judge. There was kind of this inter-working of people's personal lives and business lives that you don't see today, but, when you run an organization and you work closely with people and want to get the best of them, you have to figure out how to tolerate a lot of differences and earn the respect of people to try to work through the crises and challenges that they have outside of the company while they're contributing inside the company.
Josh King:
It's a huge gap, Jeff, from a concrete company to modern data farms that represent the financial services business, trading, and the distribution of data. You spent $5.2 billion in 2015 to acquire Interactive Data Corp., from Silver Lake and Warburg Pincus. Is data the final piece of the ICE puzzle?
Jeff Sprecher:
It's a good question, and I will tell you that, the ICE shareholders, when I go out and meet them, and I go out and meet my shareholders quite often, ask that question of me all the time. Is data the future? I always look down and in front of them is a smart phone, which none of us had 10 years ago. I point to it and say, "Are you consuming more data today than you did 10 years ago? Is there any doubt in your mind that 10 years from now you're going to consume more data than you do today?" You actually have something in your life called a data plan, most likely, that we didn't have before. We had a flip phone. So, yeah, I think we all have, because of technology, the ability to process data. Imagine, today, ordering a car to pick you up and not being able to see on a map this little black dot driving around so that you can tell that it's coming around the corner. Today we take that massive amount of technology that goes into showing where our shared car service is going to be at any moment in time, and we take it for granted. So I don't know what the future is going to entail when it comes to technology, but I know it's going to consume a massive amount of data.
Josh King:
Massive amounts of data can be farmed and housed at any place in the world. I think Mark [Wastersugg 00:44:07] told me that your first server was under a desk of some guy in your office in Atlanta.
Jeff Sprecher:
Yeah, it was Sun Spark server and it cost $22,000. That was a big investment. The team wanted a second one and I couldn't believe this was out of my checkbook, that I was going to have to spend $22,000 on something that I didn't really know what it was. And by the way, it wasn't that big. It didn't look like $22,000 when it sat under a desk. Ultimately, we figured out a way to do a deal and lease one, by the way.
Josh King:
ICE made its home in Atlanta. We talked about Atlanta earlier. If you listened to [Hala Modamaugh 00:44:51], the head of the Metro Atlanta Chamber of Commerce, the home of financial technology, it is also on the very, very short list, if you consider 20 cities in North America the short list, for the next second headquarters of Amazon. I want to hear a little bit of a news clip, and then have you make the pitch for Atlanta.
Speaker 11:
238 cities across the United States were eager to become the home of HQ 2, Amazon's new headquarters. Amazon has since waded through these proposals and narrowed down its search for a site to just 20 cities. The new headquarters is expected to create thousands of jobs in the area. Amazon has said it plans to invest over $5 billion and accommodate as many as 50,000 high-paying jobs.
Josh King:
$5 billion, 50,000 high-paying jobs. Should Atlanta get it?
Jeff Sprecher:
It should definitely be deeply under consideration. And the only reason I didn't say yes is, I don't want to lose any of my employees as part of that 50,000 that they're going to hire. But I am a part of the Chamber of Commerce as a volunteer and have worked behind the scenes to kind of show the Amazon executives how great this city is, that Atlanta is. And so, yeah, I think it's an amazing place to do business.
Jeff Sprecher:
When you think of Atlanta and you think of the business community, you think of Home Depot, you think of United Parcel Service, you think of these great companies that are iconic brands in the United States, both those two, for example, that are somewhat threatened by the move to online shopping and drone deliveries. But companies and business has to reinvent itself, and Amazon is forcing everyone, really, to take a look at their model and think about, how do I engage online and make it easy for people to access my product? So, in an interesting way, you really want to have them be at ground zero, so you can study them in the same way that I, from afar, studied Steve Jobs.
Josh King:
We are on the precipice of perhaps the next big breakthrough, Jeff. Here's a clip from Kelly Evans on CNBC last November talking about Bitcoin as it reached a then-high, I think, of $8,000.
Kelly Evans:
Bitcoin first hit 1,000 back in October of 2013. It took nearly 1300 days to reach 2,000. That was just in May of this year. Since then, the crypto currency has absolutely taken off. 143 days to go from 2 to 5,000, 47 days to double again to $10,000. And after hitting $10K last night, last night, for the first time, it took just over 12 hours to hit $11K and now just a few hours to fall back below that level. So what's next for Bitcoin after a rollercoaster day...
Josh King:
I stand corrected. It was not 8,000, it was 11,000 back then. I think it's got to a high of somewhere above 20, and now considerably lower. You were at a Goldman Sachs conference last December, Jeff. You said, sort of famously, "We may be stupid if we're not being first on that," in response to a question about jumping on the Bitcoin bandwagon. I saw you on stage a few weeks ago at Boca Raton with Michael Casey, author of the Truth Machine: Block Chain and the Future of Everything. Has anything happened in the last four or five months since you were on the stage with Goldman Sachs to change your mind?
Jeff Sprecher:
Well, I think I was being self-deprecating, that I don't really know how this is all going to play out. I would tell you today that that's the same position that I'm in. What I do know, though, and to be a little more forthcoming, is that there is a lot of people in the world that are willing to trust mathematics more than they're willing to trust the government or a central bank and certainly elected officials. It's interesting, the case of Bitcoin itself, which is that mathematics designed by a person named Satoshi, who nobody has ever met, nobody has ever seen, nobody knows who he is or if he'll ever show up or if he even exists, and yet there are a lot of people in the world that are willing to put their trust and faith in him and that idea than they are in a lot of other institutions. I don't think that we can ignore that. You mentioned Michael Casey, who I interviewed, and I came up with a series of questions on my own to ask him, the things that I was really interested in, in front of an audience of about 1200 people.
Jeff Sprecher:
One of the things that I'm interested in is the fact that the blockchain, and the blockchain technology, even if you want to step back and say the mathematics that people are talking about that could be disruptive, is allegedly going to be an indelible version of the truth. In other words, that all history can be written to some mathematical infrastructure or ledger, as they call, and can never be erased, and therefore it is the indelible truth. Whether it's a currency or whether it's history. But at this exact moment that we're recording this, we're having a public debate about whether or not our identity should be able to be mined by computers and whether we own our own identity and whether we have the right to be forgotten, as they call it in Europe. It's an interesting oxymoron. At the same moment in time we're fascinated about an indelible record, we're also asking how can we be forgotten? I don't know the answer to that, other than, because we're talking technology, there will be a technology that will have to bridge those two, but I do think there is something going on here that we can't ignore, and that is this increased faith in technology.
Jeff Sprecher:
I've mentioned ride sharing a couple times. In New York City today, to be a taxi driver you have to have a medallion, you have to pass a test, you have to be inspected, your automobile has to have insurance, and a whole cadre of approvals that are needed so that the public is protected, but yet we have ride sharing, which, almost everybody, I assume, that is listening, has at some point used, where we say, "Well, this person has three thumbs up." We don't know whose thumbs they are, we don't know how those thumbs got there, but in an odd way, many of us will put more faith and confidence in those thumbs than we do in this entire infrastructure to approve a taxi driver. There's something going on there where technology today has reached a point where we trust it more than many of us trust each other.
Josh King:
And to bring everything full circle, that ride sharing driver probably isn't going to ask you, "Why come to this concrete hellhole in the first place?"
Jeff Sprecher:
Right.
Josh King:
As we wrap up, Jeff, the last time you reported earnings, February 4th, for the last quarter of 2017, you had full-year revenues of $4.6 billion. You said at the time, "We are pleased to deliver our 12th consecutive year of record revenue. Looking ahead to 2018 and beyond, more innovation and growth to serve our customers and build shareholder value," as you say, what's that going to require from Intercontinental Exchange to make it a baker's dozen?
Jeff Sprecher:
You never know in life or in business what's around the corner. Part of it is just being willing to accept whatever comes. I tell entrepreneurs who ask for my advice... and some do, I'm becoming more known, at least in Atlanta, to entrepreneurs... that running a company, to me, is like jumping into a river. The hardest part is standing on the bank and deciding to jump in, because it's water and it could be cold and it's a river and you don't know what's going on. But once you make that jump, you're actually in the river. When you're running a company, the thing that you can do is paddle right and paddle left and avoid the rocks as the river takes you somewhere. The dumbest thing you can do is try to paddle back upstream against the current, and I see entrepreneurs all the time paddling upstream. The thing you got to really think about is, is this taking me somewhere and do I just go right or do I go left? When I'm faced with decisions, roadblocks, it's really just left or right, which way is it? And if you break it down that way and you do that over and over every day, eventually you'll find you've navigated down the river successfully.
Jeff Sprecher:
I don't really need to know what's four miles ahead in the river. What I need to know is, do I have a vision to get to the end of river, and the answer is yes. Okay, so let's deal with left and right.
Josh King:
Well, Jeff Sprecher, let's grab a couple paddles, get in that canoe, and hop into the slipstream.
Jeff Sprecher:
Thank you for taking the time to interview me.
Josh King:
Thanks a lot for joining us in the ICE House.
Josh King:
That's our conversation for this week. Our guest was the boss, Jeff Sprecher, founder, chairman, and CEO of Intercontinental Exchange. If you like what you heard... you've heard me ask you this before, I'll say it again... please rate us on iTunes so that other folks know where they can find us. And if you've got a comment on this episode or a question you'd like one of other experts to tackle on a future show, email us at [email protected], or tweet to us @NYSE. Our show is produced by Pete Ash and Ian Wolff, with production assistance from Kent [Abel 00:44:58] and Stephen [Portner 00:44:58]. I'm Josh King, your host, signing off from the Library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Speaker 14:
Information contained in this podcast was obtained, in part, from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties, express or implied, as to the accuracy or completeness of this information, and do not sponsor, approve, or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell or a solicitation of an offer to buy any security or recommendation of any security or trading practice.