Reuters Story on E-Exchange

---------------------- Forwarded by John Arnold/HOU/ECT on 08/08/2000 05:54
PM ---------------------------

"Zerilli, Frank" <fzerilli@POWERMERCHANTS.COM< on 08/08/2000 08:17:19 AM
To: "David D'alessandro (E-mail)" <DDALESSA@SEMPRATRADING.COM<,
"'jarnold@enron.com'" <jarnold@enron.com<
cc: "Glynn,Kevin" <kglynn@POWERMERCHANTS.COM<, "Wolkwitz, Rick"
<rwolkwitz@POWERMERCHANTS.COM<, "Kelly, Joseph" <jkelly@POWERMERCHANTS.COM<
Subject: Reuters Story on E-Exchange

By Fiona O'Brien
LONDON, Aug 8 (Reuters) - The head of the largest yet Internet
exchange for energy products said it will combine traditional anonymity
with transparency to give traders a better overview of market activity.
The InterContinentalExchange (ICE), an Atlanta-based venture
initiated by seven major oil companies and banks is due to launch August
24 for trade in precious metals swaps, with energy products trade to go
live soon afterwards.
While market transparency will increase as dealers used to
over-the-counter (OTC) telephone-based market trade on a screen, users
of the ICE will remain nameless up until the point of trade, Jeffrey
Sprecher, ICE's chief executive officer told Reuters in an interview.
"As soon as you hit the deal, the system reveals both
counterparties," he said. "The real strength is that you (still) get the
ability to manage your own counterparties.
"You can list all of the people you want to do business with and put
in the credit terms under which you will do business."
This information will then be processed by what Sprecher called a
"giant matrix" within the system.
"(At the moment) people in the over-the-counter market aren't sure
they have ever seen the entire market," he said.
"(On the ICE), deals you can do will appear in white and deals you
can't do will be in grey, but you can see the entire market."
Giving players a fuller complement of figures than they are currently
aware of in a telephone-dominated market should increase market
transparency, as they can keep abreast of the activities of dealers who
fall outside their own trading criteria, Sprecher said.
The exchange is expected to function in real time around the clock
and will be accessible via the public internet or a private network
connection.
Initial liquidity will be provided by founder members BP Amoco
<BPA.L<, Deutsche Bank <DBKGn.DE<, Goldman Sachs <GS.N<, Morgan Stanley
Dean Witter <MWD.N<, Royal Dutch/Shell <RD.AS<<SHEL.L<, Societe Generale
<SOGN.PA< and TotalfinaElf <TOTF.PA<.
Shell runs the industry's largest international oil trading operation
and Goldman Sachs' J.Aron commodities arm last year was dominant
internationally in unregulated OTC oil derivatives.
Late in July the original cast was joined by six gas and power
companies, American Electric Power <AEP.N,< Utilicorp's Aaquila Energy
<UCU.N,< Duke Energy <DUK.N,< El Paso Energy <EPG.N<, Reliant Energy
<REI.N< and Southern Company Energy Marketing <SO.N<.
Sprecher said continued liquidity would be ensured by the fact that
the founding members will pay fees even if they do not trade and will
face additional penalties if they fail to live up to their commitment to
trade a minimum volume.

TRADERS STILL TO DO OWN CLEARING
As well as increasing awareness of market moves, Sprecher believes
trading over the Internet could boost trading profits.
"The economics (of the system) will be driven by the fact that a
paperless back office can really save a lot of money," he said.
However such savings on trading the ICE appear some way off given
that dealers will initially have to continue using their own clearing
systems, as they do in current OTC systems.
Under the ICE, once a deal has been struck both counterparties will
receive an electronic deal ticket which will then go through those
players' own risk management systems.
But the exchange is eager to look at ways of introducing its own
clearing system.
"No one really knows how at the moment," Sprecher said. "There might
be some hybrid between traditional exchange clearing and what now exists
peer to peer."
In terms of participation costs, no membership fees will be incurred
except those associated with trading. Membership is open to any
commercial market participant.
Each product will have its own published commission schedule, which
Sprecher assessed at "slightly below the best prices someone would pay
in the voice broker business". ((London newsroom +44 20 7542 7930)

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Tuesday, 8 August 2000 13:24:31
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