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ICE CEO struggles to explain why volatility still looms at historic lows

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ICE CEO struggles to explain why volatility still looms at historic lows

With less than a month left in 2017, Intercontinental Exchange Inc. Chairman and CEO Jeffrey Sprecher still cannot explain why the stock market's volatility has been looming at near-historic lows.

"My mind is it's just the new normal," he said Dec. 5 at the Goldman Sachs U.S. Financial Services Conference. "I can't explain the low volatility. I honestly can't."

For much of 2017, low volatility has plagued companies that rely on trading revenues to make a profit such as some trading firms, certain hedge funds and exchanges like the New York Stock Exchange, which ICE owns. Since Jan. 2, implied volatility, as measured by Cboe's VIX, has fallen about 19.3%, even hitting a newfound low of 9.14 in November.

While traditional volatility-sparking events such as a new administration, regulatory proceedings or geopolitical change have been consistent throughout the year, industry experts have struggled to pin down an exact cause for the lack of trading activity. One commonly cited cause is the investment industry's shift away from actively managed strategies toward passively driven strategies, a trend that Sprecher said will be "here for a while."

Sprecher added that traders have still found opportunities to be active without volatility. For ICE, the exchange operator for much of 2017 has focused on its market data offerings, as well as expanding out its fixed-income product offerings, he said.

"[As an exchange executive,] you look smart on days where there's a lot of volatility, and you look like an idiot on days where there's no volatility, and the reality is, you have no control over it," Sprecher said.