Jeff Sprecher doesn’t describe himself as a disruptor. “Problem-solver” is the way the Intercontinental Exchange Inc. CEO would prefer it.
During a World Affairs Council of Atlanta event in late October, he offered a story as a means of illustration: When he bought Continental Power Exchange in 1997 for $1, his plan for becoming the dominant marketplace for energy contracts didn’t include taking it online.
The company was, after all, dealing with utilities that operated nuclear plants and other major infrastructure assets at a time when few people would even put their credit card details online, he said.
What drove the move was an ultimatum by the Continental programming staff led by Edwin Marcial, who would later become the company’s CTO, Mr. Sprecher said in a dialogue with former Federal Reserve Bank of Atlanta President Dennis Lockhart.
“I said to Edwin, ‘You have lost your mind,’” Mr. Sprecher said, but eventually he went along. “I don’t want to take any credit for being a visionary.”
Two decades later, the company operates 12 digital exchanges, including futures markets that set the global price of oil, cotton, cocoa and other commodities.
Its assets include the New York Stock Exchange, which it purchased in 2013. While the iconic market is only 6 percent of ICE’s business, it has become a calling card, both for the company and for Atlanta boosters: “It’s cool to be able to say you own the New York Stock Exchange,” Mr. Sprecher said.
The fact that it’s based in Atlanta now illustrates a point: Exchanges were named after cities when tied to physical trading floors, but location is irrelevant in the new digital world. And that has been a competitive advantage on ICE’s way to becoming a $30 billion company in terms of market capitalization.
“We were somewhat unique in that we said, ‘Screw the city; we’re on the Internet,” Mr. Sprecher said at the event.
That mindset shows how he operates: seeing an inefficiency and acting quickly to fix it, which is how most of ICE’s big wins have occurred.
Just after the worst of the global financial crisis, he read a Financial Times article about credit default swaps, where debt issuers insure against default of borrowers by buying a derivative from a third party. “I’d never heard of a credit-default swap,” he said.
But when it became evident that banks needed a way to sell these and get them off their books, Mr. Sprecher said he took the idea for an over-the-counter market to then-Treasury Secretary Timothy Geithner.
He paraphrased Mr. Geithner’s reply: “I’m government, I can’t really help you. But if you build a barn and open the doors, I’ll make sure the damn horses run right by that place.”
“I just read an article that said, ‘Somebody ought to do something about this,’” Mr. Sprecher said. “My whole company has been a history of those kinds of opportunities that we saw and acted on quickly.”
Another easy bet was the London Interbank Offered Rate, or LIBOR, a key global benchmark rate for loans in five currencies. ICE won a tender for to administer it in 2014– this time for 1 British pound — after allegations of manipulation led authorities to recommend a new operator.
Fostering and Facing Disruption
All this has taught Mr. Sprecher that while he might be the innovator today, he could be disrupted tomorrow and should always have an eye toward the future.
Financial and futures markets like those he operates have the advantage of being highly regulated with at least a notion of fiduciary responsibility and government oversight. Right now, that means people trust it more than the looser “networks” created through blockchain and other mechanisms to trade bitcoin and other cryptocurrencies, he said.
But with culture changing, markets may not be forever immune to the “disintermediation” happening in the broader financial services arena, Mr. Sprecher said, noting that his company is an early investor in Coinbase, a leading digital currency exchange.
With the advent of smartphones, the idea of what constitutes an “account” is changing. While it’s currently the “nexus” for a traditional arrangement whereby banks take deposits, lend money and manage investments, the whole system is being challenged by new levels of connectivity.
Young people sometimes trust online rating systems more than government permits. Anger at financial institutions and regulators lingers still 10 years after the crisis. Accounts could eventually simply mean a wallet on your phone tied to a digital currency, bypassing the banks.
“Where this goes, I don’t know. But I also don’t deny it,” Mr. Sprecher said.
This all could be exacerbated by cybersecurity breaches like the one that hit Equifax, exposing the personal information of 146 million Americans and the liabilities of the traditional model where individuals (spokes) are tied to banks (hubs).
“This is going to start a movement to take that information back. The hubs will want to encrypt it and protect it and say that’s the way it should go. The spokes are going to say, just let me keep it,” Mr. Sprecher said.
Either way, the train of “disintermediation” is coming down the tracks, and the industry has to prepare, he said. Just a month after his speech, bitcoin hit an all-time high of $11,000 and sits at more than $10,400 as of this writing.
Amazon’s HQ2 and Atlanta As a Global Launchpad
Also the current chair of the Metro Atlanta Chamber, Mr. Sprecher was asked about the city’s prospects to win the $5 billion Amazon HQ2.
Based on his own experience, he said he believes industry studies putting Atlanta at the top of the competition, which fielded 238 bids from across North America.
“I run a really global business where more of my income comes from outside the country than inside, and we have this amazing infrastructure here that allowed our company to organically grow globally out of this place, not the least of which is Hartsfield-Jackson Atlanta International Airport,” he said.
The Atlanta Beltline, too, has been an asset — though he wasn’t sure about it when first asked to put millions of dollars into a “bike path.”
“Thank God that bike path is here. It’s fundamentally changed the way we think of ourselves, the way our city is growing now,” he said.
London’s Post-Brexit Role
Asked by Mr. Lockhart to envision the role of London as a financial center post-Brexit, Mr. Sprecher was hesitant, given that his comments urging the U.K. to have a bit of “swagger” in Brexit talks had caused a stir.
But he said it would benefit London to play up the fact that it has a lot of the capital that mainland European small and medium-sized businesses need in order to grow.
Brexit should end with a favorable financial arrangement, he said, since both sides have so much to gain from an amicable split.
“My own sense is that it will all work out because they both need each other. It may be a messy divorce, but the kids will be raised by two parents.”