Announcer:

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 House. Our podcast from Intercontinental Exchange on markets, leadership, and vision and global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over for 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 ICE's exchanges and clearing houses around the world. And now, welcome Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.

Josh King:

Today we're taking a flight of sorts, roughly 7,000 miles, the distance of the nonstop trip between JFK and Abu Dhabi. Leaving the library of the New York Stock Exchange for a very special edition of Inside the ICE House. Some say that Abu Dhabi, capital of the United Arab Emirates, is the world's richest city. Located on an island in the Persian Gulf, just down the coast from the Strait of Hormuz, the Emirates sits on perhaps one-10th of the world's oil. Think of that. An island populated by 1.4 million, covering just 375 square miles, is central to how 7.7 billion people around the world now fuel their lives. But it wasn't always that way. When oil exploration first began in the 1930s, Abu Dhabi was just a simple fishing village with a fort. Persistence was key for the city's success because it wasn't until 1958 that oil was struck in the Murban Bab field, several miles off the Abu Dhabi coast.

Josh King:

The Murban Bab field came online in May, 1960, with an output of 3,600 barrels a day. Now today, the light crude from Murban produces about 1.7 million barrels a day, which led to a bold, and in many ways historic event earlier this month, the 2019 Abu Dhabi International Petroleum Exhibition and Conference, otherwise known as ADIPEC. The announcements there have the potential to change the energy industry as we know it, including the launch of ICE Futures Abu Dhabi, our first ever exchange in the Middle East and the 13th exchange in our network of ICE exchanges around the world. Here's a clip from his excellency, Dr. Sultan Ahmed Al Jaber, group CEO of the Abu Dhabi National Oil Company, or ADNOC, detailing the event's significance.

Dr. Sultan Ahmed Al Jaber:

Distinguished guests, allow me to be clear and get straight to the point. We have to admit and come to terms with some realities, that our industry is being disrupted on multiple levels. Disrupted by new technology, new business and operating models, new forms of energy, and a new geopolitical order. This era of disruption is just beginning and will only gather pace, yet, the oil and gas company of today can be a winner of tomorrow if it operates at a lower level of cost and a higher level of performance. If it brings digital into the core of its operations. If it embeds sustainability into its DNA.

Josh King:

Building sustainability into its DNA, a bold idea indeed, to make the oil and gas company of today a winner of tomorrow. You had to see the scene inside the Abu Dhabi National Exhibition Center, thousands of industry leaders from global capitals converged on the island to talk about the future of energy. Here's more from his excellency, Dr. Sultan.

Dr. Sultan Ahmed Al Jaber:

By doubling down on this mission to modernize, we can and we will remain and an essential pillar of the future diversified energy mix. The fact is, by 2040 all the energy currently consumed in the United States, India, and Japan will be added to the global demand. And even in the most fast paced transition scenarios, oil and gas will still provide the source for over half of it. These facts are undisputed and simply make a very compelling business case to invest in the future of our industry. Here, at ADNOC, we are well on track to expand our oil production capacity to 4 million barrels by the end of next year.

Josh King:

4 million barrels by the end of the year. As Stuart Williams, the President of ICE Futures Europe and a prior guest on this show, told business insider, "You have a global benchmark that is Brent, a US benchmark that is WTI, and now we're going to have an Asian benchmark in Murban at a comparable grade here." Here, one more time, is Dr. Sultan.

Dr. Sultan Ahmed Al Jaber:

And just last week, the Supreme Petroleum Council made historic changes to the way our oil is traded in the market. These changes are centered around Murban. our high quality, highly sought after crude, unique to the United Arab Emirates, that customers around the world know quite well and very much rely on. And to facilitate this new trading mechanism, I am very pleased that the Intercontinental Exchange, ICE, announced just this morning that it will set up a futures exchange right here at the Abu Dhabi global market.

Dr. Sultan Ahmed Al Jaber:

I am also pleased that ADNOC will join major IOCs, traders, and customers as founding partners of the ICE Futures Abu Dhabi, or IFAD. IFAD will be the home to the Murban futures contract. Crucially, this contract will replace retroactive pricing with forward pricing, allowing buyers to hedge the risk in the open market. This, ladies and gentlemen, represents a very bold step and a true historic milestone that offers our partners and our customers significant benefits. It will help capture more value from every barrel we produce and it will place Abu Dhabi and the United Arab Emirates at the geographic center of global crude trading.

Josh King:

The geographic center of global crude trading. So what's really going on here? The news amid the pomp and ceremony is how Abu Dhabi is changing the mechanism for how it prices its Murban crude. It's moving from retroactive pricing, the way it's always done it, where the buyer finds out the price after it's agreed to purchase the crude. To a forward looking, market driven price based on a futures contract traded on an exchange, in this case, the new ICE Futures Abu Dhabi. So now, going forward, Murban futures will sit alongside the most significant global oil benchmarks providing, for the first time, a greatly expanded group of participants to trade and hedge Murban in a regulated, transparent, and accessible venue. That's progress. And with all that as backdrop, Jeff Sprecher, the Chairman and CEO of Intercontinental Exchange, sat down at ADIPEC with Helima Croft of RBC Capital Markets for a fireside chat about his perspective on the announcement, what it means for the region, and what else we should expect from ICE Futures Abu Dhabi. Along with Jeff's advice for budding entrepreneurs. Helima Croft's conversation with Jeff Sprecher, that's right after this.

Speaker 4:

And now a word on ICE's ETF Hub.

Speaker 5:

Across global markets, ETFs are flourishing and ETF assets now top 5.5 trillion dollars, yet a variety of protocols and lack of standardization mean the time is right to help fuel further growth. Now new advancements can help simplify the process. We're working with the industry to create a centralized hub that connects participants and brings efficiencies to the primary market. ICE ETF Hubs unified standards and protocols supports order entry across equity and fixed income ETFs. For fixed income, the speed of custom basket facilitations will increase, with both parties using APIs, UI, and chat to assemble a mutually beneficial basket. Market efficiency will be enhanced by improved transparency, helping to boost the number of creation and redemption baskets assembled and underlying bonds traded. ICE ETF Hub brings new efficiencies to the primary trading process, fueling ongoing growth, participation, and market modernization.

Josh King:

Now let's travel out to ADIPEC 2019 at Abu Dhabi National Exhibition Center. The next voice you'll hear is Helima Croft in conversation with ICE's Chairman and CEO, Jeff Sprecher.

Helima Croft:

So Jeff, ICE and ADNOC made two historic announcements yesterday on the planned launch of the new exchange, as well as a launch of the world's first Murban futures contract next year. Can you talk about the significance of these twin announcements and why now?

Jeff Sprecher:

Sure. First all, let me tell you a quick story. I started ICE in year 2000, and in year 2001, we bought the International Petroleum Exchange of London, which was our first regulated exchange. And a senior person in the oil industry said to me, "If you could ever do anything, you should figure out how to list Murban crude." I didn't know much about the oil markets, but that has always resonated in my mind. And so, when we started a formal relationship with ADNOC and watched their thinking evolve, we were incredibly anxious to be here. What we're seeing in the market is ... And I think you and I see it. You and I, to make a reservation at a restaurant, will look at our phones and read about the restaurant and maybe even look at the menu and figure out what we're going to eat before we even arrive.

Jeff Sprecher:

We are starting to take for granted the fact that we want transparency. We want information and transparency when we make decisions and that's happening in all aspects of our lives. And including, obviously, in the commodity space. So what this futures contract's going to do is going to be regulated, transparent price discovery, and it should allow the complete supply chain around petrochemicals to able to hedge. To be able to have some predictability. Your opening comments about how we've seen this volatility in the last year resonates. Which is, okay, if that's the macro environment we're in, how does anybody exist in that environment and make long term decisions on investment? And the way to do that is to be able to hedge out some of that risk. And that's really what the opportunity is and we're excited to be a part of it.

Helima Croft:

Now, you've basically opened 13 exchanges. What have you learned from that process and what are you going to bring here? In terms of building this open, transparent electronic market for trading?

Jeff Sprecher:

Gosh, I've learned a lot of things. First of all, there's a resistance to change. As much as I say we all expect transparency and want information at our fingertips, there's a ... When we enter a new market, these are existing markets and there's already a custom and practice on way of doing business. And so, you're asking people to change their behavior, you're asking them to change their workflow. And so, part of this is creating a natural evolution and not so much a revolution. The market really will resist the revolution. And so, it's going to be incumbent on us to make it easy to access these markets, make it easy to learn about what you can do, make it easy to interface with a workflow of clients.

Jeff Sprecher:

So that, just like I mentioned, all these apps have made it easy for us on our phone. You need something that, even somebody like me that's not very literate technologically, can embrace easily. And so, that's going to be the challenge we're going to have with all of our partners in this venture is, ... It's great. We have anchor tenants, we're building a shopping mall and the great department stores have already agreed to come. But we're going to need other people to come shop with us, and to do that, we're going to need to educate the market and evolve it.

Helima Croft:

I want to ask you about when you're building your partners, liquidity is going to be a key ingredient for the success of any benchmark. How are you going to build liquidity with both physical and financial participants?

Jeff Sprecher:

There's going to be some carrots and there's going to be some sticks, as we say in the US, on how we move a horse. But no, the reality is, I think part of why ADNOC embraced us and has worked so well with us is, we have already 10,000 aggressive, deeply committed commodity traders that are part of our network. And this will take us to the next 10,000. But we already bring an audience of people that have embraced the technology, embraced hedging strategies, and now we're going to bring them one of the most important crude streams. Particularly with the growth in the world being very Asia-oriented over the last few years and Murban being the engine to fuel a lot of that growth. We're going to be able to start with a great base and then continue to move deeper into Asia, I suspect. And we're quite excited about it. If you look at my company, where is all the growth of new customers and new traders? New information consumers? It's really the Eastern hemisphere.

Helima Croft:

And can you talk a little bit more about your partners and the role partnership is playing in the development of both the exchange and the benchmark?

Jeff Sprecher:

Yeah. So I had this idea to start ICE, and I've never been a trader, I've never worked at a bank, I never worked on Wall Street. And so, I was not particularly well equipped to figure out how to do this. And so, I built with some colleagues version 1.0 of a trading platform. My colleagues and I, over a period of about two and a half years, we went out and talked to 106 different trading firms. Many of those I did. I mean, I have a medallion status on most airlines, going back from starting this company. And we went and everybody pretty much told us the same thing, which was, this is really interesting. Once you get it up and running and you have a lot of deep liquidity, come back and see me.

Jeff Sprecher:

And so, we couldn't find a way to get it to start. We knew that once the engine was rolling, that others would come, but getting it started is hard. Because on day one, you need buyers and sellers that are prepared to do business. And from the first day that an exchange opens, you want an audience that's there, watching, essentially, a blank screen that will then run in and get it going. So I started ICE. I eventually said, I was the 100% owner of my company, and I eventually said, "This is not working." And I brought in 13 partners who were some of the premier partners in trading at the time. And then it took off.

Jeff Sprecher:

And so we're taking a page, I'm telling you an old story, because we're taking a page out of the history of my company on what worked really successfully very quickly back when it started. And the group that has been assembled around this launch is, I mean, it's like a who's who of who you would want. And it's not us so much, honestly, as ADNOC has deep relationships and we're able to use their contacts to get to the most senior levels of those firms. And as you've probably seen around this conference, commitments from the C level executives that they really want to be a part of this, which is a lot different than the 106 meetings that I took in year 2000.

Helima Croft:

One of the big themes at this conference has been on energy transitions. I'm wondering if you could talk about your perspective on the energy transitions and what role exchanges will play in this transition.

Jeff Sprecher:

Yeah, that's a good question. I hope that you all had an opportunity to see the opening of this conference and hear Dr. Sultan, who's an amazing speaker and had a really interesting message. Really interesting to me, because what he talked about as the current investment of ADNOC and the vision of the future for ADNOC, is exactly what we're actually seeing on our exchanges. And I didn't compare notes, he certainly didn't ask me for advice, and we didn't compare notes, but it was just resonating with me. Like, wow, this is really, exactly what we're seeing. He really contextualized it. And what is that? Well, we're seeing a rapid growth in the trading of liquified natural gas. I mean, the trading of liquified natural gas, just a few years ago, was zero. I mean, it was nonexistent. If it was done at all, it was term deals that were done in the market and over the counter market and not on exchanges.

Jeff Sprecher:

Today, liquified natural gas, it's just asymptotically growing and it's very transparent and actively trading. And as Dr. Sultan mentioned, that fuel is one of the fuels that is the marginal fuel that's fueling the growth of India and Asia, other places around the world. Second, point that he made was that, obviously there's a huge investment in renewables, and we trade renewable credits. Many countries have adopted this notion of tradable credits in order to finance renewable energy. And we list all of those. And those are growing, as you can imagine, in a broad interest. And then, if you just look at your basic historical refined products, crude oil and refined products, we've seen pretty steady growth. Much slower than the growth that we're seeing in natural gas, liquified natural gas, but steady growth.

Jeff Sprecher:

And at the same time, a growth in emissions carbon credits, which are really offsetting the growth that you see in crude oil. So you see the industry doing what Dr. Sultan mentioned, his excellency mentioned that we need to have a base and there's going to be a growth of that base while these new technologies come in. But even while the historical technologies are growing, people are conscious of the carbon footprint and are taking steps to help offset that through carbon credits and other sustainable practices. And we're seeing all that, actually, in the market. It's quite interesting to me. And thank God we positioned ourselves to have those products as a diverse platform. In fact, I would say to you, over time ICE Futures Abu Dhabi, the goal is to start with Murban crude, but to expand in the natural way that these markets have expanded around the world.

Helima Croft:

We talked about volatility. I know it's a question we always ask at the end, but I actually like to ask it now, in terms of almost what keeps you up at night. You talk about the importance of the Asian market. In terms of the events that we've seen over the last year, I mean, what trends concern you? Do you look at it as a trade war? What are you focusing on, that we should keep our eye on for next year?

Jeff Sprecher:

Yeah, it's interesting because, for an exchange operator, you're neutral party. You're Switzerland. And so, we don't necessarily have a view on price. We look at prices every a day so we have a view, but as an operator, we act uninformed. And so for us, we have to assume that something terrible is going to happen and that there's going to be a crush of business. Number one, that the platform is going to need to absorb, just from a scaling standpoint. And then secondly, that some of our customers may get into trouble, be on the wrong side of that volatility move. And because we clear, if you will, these trades ... in other words, we become the clearing house. From a legal standpoint, becomes the buyer to every seller and the seller to every buyer. We live in a world where we have to say many of our customers may not make it through that and yet, they owe us money.

Jeff Sprecher:

I mean, we are the buyer to seller. And so, we do a tremendous amount behind the scenes of thinking about our customers positions and what are they doing? And from time to time we'll question them, which is, "Do you realize you have a pretty directional position here that may look good today but in the wrong circumstances could look bad." And we want to make sure that ... And behind the scenes there's a lot of conversation, it's us saying, "Do you know what you're doing? Because we're nervous about you as a counterparty." And so, as these volatility events manifest themselves, we're really looking at the broad spectrum of players and trying to say, "Does everybody have their belt in suspenders on?"

Helima Croft:

Well, speaking of belt and suspenders, you mentioned earlier that you were not a trader, you didn't have a Wall Street background. I wonder if you could dive a little bit into your personal story, because you built such an extraordinary business, and so you're going to be flying off after this to give a talk on entrepreneurship.

Jeff Sprecher:

Yes, I am actually, yes.

Helima Croft:

And so, when we think about lessons that you give to the next generation, I ask the question, if you could go back and talk to your younger self. But we think about ADNOC as an extraordinary young organization, young talent. There's young ADIPEC here. What would you say to all the up-and-comers that are here in terms of, they want to emulate you in terms of what you've done in your career.

Jeff Sprecher:

First of all, I appreciate you mentioning that I have to leave, because I actually, I have my passport here in my pocket and there's a car out there with my luggage in it. And I am going to run out of here because, about a year ago, my engineering university asked me if I would come give a lecture on entrepreneurship. And I didn't really want to do it but it was a year away, and so, I don't know if you know ... First of all, one lesson is, if you want somebody to do something ask them a year in advance. Because nobody has an excuse a year out. So anyway, I agreed to do this and it's an interesting question you're asking because I'm struggling to figure out a lecture that I'm going to give these young people about entrepreneurship. Because I personally don't think you can teach somebody how to be an entrepreneur.

Jeff Sprecher:

And the reason I say that is that when you are starting a business, or starting any enterprise, and even this exchange that we're starting that has tremendous backing and momentum, life tends to throw wrenches at you. I mean, nothing ever goes directionally straight up, certainly markets that you follow. You know, I mean, for every two step forward, there's one step back. And the thing that is hard to describe to an aspiring entrepreneur is how difficult it is when you have that setback. And there's something that entrepreneurs have, I don't know where I got it, but there is some grit or determination. When you're really on your back feet, that you dig deep inside and you say, "I'm not going to let this get me down and I'm going to get up tomorrow and go back into the fight." And when I'm hiring people, recruiting people and interviewing people for jobs, I try to look for that quality.

Jeff Sprecher:

It's very hard to get and it's certainly not on your resume or CV. It's something that comes from within and I don't think it's taught. I think it's probably people that had issues in their childhood or some struggle in their upbringing and learned to fight through it. And so, I don't know how you teach grit. And I basically, that's going to be the title of my talk with this university is, I'm sorry, kids, I actually don't know how to teach you this. But the one thing I would say in reality is, having a plan for the worst case scenario is a good idea. When I started my company, I didn't have a lot of money and I laid in bed and I thought ... Before I thought about all the success and all the ideas that I was going to try to implement in the firm, I thought about what was I going to do if this thing went out of business. And I figured I needed about two months worth of rent. And I already knew who I would go to ask to borrow money.

Jeff Sprecher:

And I figured out, I really laid out this terrible scenario, and once I did that, then my mind was at ease. And so, in my case, I was trying to do it all on my own and deal with my issues all internally. But the one thing I would say to budding entrepreneurs is, if you can have a base of support, if you can have a environment around you, colleagues, family, whatever it is. That when you're are really down, you can turn to, to give you that extra lift. It certainly is a lot better than deal dealing with it on your own. I dealt with it a lot on my own, and in retrospect, I think it's partly why people like to work in WeWork offices and why incubators and what have you. They've built an environment of collaboration, where there are other people that are going through struggles and those things didn't exist in my era. But I would encourage people to think about the downside and the support base before you think about what you're going to do with all your riches.

Helima Croft:

Fantastic advice. I actually think of Abu Dhabi as a great incubator in terms of bringing the best talent, the best ideas, encouraging collaboration. And so, we were thinking about this exchange and this benchmark. Can you talk about what you think this means for Abu Dhabi and the UAE.

Jeff Sprecher:

One of the things I've said to many people that I've worked with here, and that are in the audience, how hospitable everybody has been and how kind. And one of the things that I've noticed here, which I don't think we have in our country, is so many people have said to me, "I want to do this because I think it will be good for my country." No one has ever said to me, "I want to do this because I think it will be good for me." Or, "I think I'm not going to make a lot of money." Or, "My trading arm can really, really print money on this." Everybody has said, "I think this will be good for the country. I think this is the right thing to do at this moment in time." So there's a sense of purpose, broader purpose, that is really inspiring and engaging. Americans are much more, what's in it for me? We have a somewhat divided country politically right now and there's a lot of divisions, wealth divisions, other kinds of things, that Americans are confronting.

Jeff Sprecher:

That here, I find a unified, positive energy about, let's do what's right. Let's do what's best. And boy, if you could ever start a business in any environment, where you've got the whole infrastructure aligned behind you saying, "Let's do the right thing." Particularly knowing what I know, which is we're going to take two steps forward, but something's going to cause us to have a knock back. And knowing that everybody, that base of support is throughout the entire culture. But what I do think, to specifically answer your question, is that I think that this grade of Murban Crude, is going to resonate. You could see it in some of the statements made by the chief executives of the major oil firms the other day, in their unprepared remarks, that grade of crude is going to start to be recognized as Abu Dhabi, as the Middle East.

Jeff Sprecher:

I don't know that many people outside of the Middle East know much about Abu Dhabi, but I think this crude, and the fact that it's going to be transparent and regulated, and have an exchange. Exchanges are iconic vehicles. We own the New York Stock Exchange, as you mentioned, and the New York Stock Exchange, often we wrap an American flag around the entire building. I mean, if you look at photos of the New York Stock Exchange, you'll see it is a symbol of capitalism for the United States. And in the same way, what we're looking to do here is to create a functioning symbol for Middle East crude that can grow and expand to deal ... I mean, at some point, for whatever reason before you and I got in this business, oil was denominated in dollars. But most countries don't use dollars, and so, you could imagine the exchange at some point might list some foreign exchange currency trading.

Jeff Sprecher:

As I mentioned, the renewables, all kinds of ... The infrastructure that's going to create Murban is going to require a lot of borrowing in debt. It's a major initiative that ADNOC and Abu Dhabi, broadly, are investing in. And are we going to list debt? Fixed income? You could see the whole ecosystem that starts around this flagship, Murban, which is so important to the Middle East and beyond, but really growing into something much bigger. And that is the aspiration. And when you start a company, you really do want to set the bar high for yourself. And I see this being much more than, hey, we can hedge crude oil. I think someday we'll have Middle East flag wrapped around the building.

Helima Croft:

That's fantastic. So my last question to you, so you can catch that flight and give that lecture, you've almost answered it already, but as we look out into 2020, what are you most excited about and most looking forward to?

Jeff Sprecher:

Interestingly, I'm really excited about the launch of this exchange. And oddly, I wouldn't have said that a week ago. But there's something about this conference and all the people that it's brought together, and it's this infectious ... I'm sure you see it too because conversation going on about changing the world and evolving the markets. To say, "Wow, I can play a part in it, however small, is exciting." And so, I really am looking for that. What I'm not looking forward to is the US elections.

Helima Croft:

Volatility.

Jeff Sprecher:

And by the way, in the US where I live, it's going to be ... it just dominates. Maybe I'll look forward to the day after the election, because it is just going to dominate the conversation in my country. And so to have something aspirational to look forward to, outside of the echo chamber we live in, will be very exciting.

Helima Croft:

Well, Jeff, I want to thank you, everyone in this audience wants to thank you, for what you are building, the inspiration you've given everyone today. And again, thank you so much for just sharing your time with us today.

Jeff Sprecher:

Thank you all for listening.

Helima Croft:

Thank you.

Jeff Sprecher:

Appreciate it.

Josh King:

That's our show for this week. A special conversation recorded live at Abu Dhabi between Helima Croft, Global Head of Commodity Strategy at RBC Capital Markets, and Jeff Sprecher, founder, Chairman and CEO of Intercontinental Exchange. Helima and Jeff spoke at ADIPEC '19 at the National Exhibition Center of Abu Dhabi. If you like what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment or question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us @icehousepodcast. Our show is produced by Rebecca Mitchell and Pete Ash with production assistance from Steven [Romanchik 00:36:08] and Ken Abel. I'm Josh king, your host, signing off from the library of the New York Stock Exchange. Thanks for listening, have a great Thanksgiving weekend, talk to you next week.

Announcer:

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 the 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, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of [inaudible 00:36:50] clarity.