ICE To Roll Out European Swaps Clearing In Coming Weeks
May 19 2009 - 7:33PM
Dow Jones News
IntercontinentalExchange Inc. (ICE) will be operationally ready
to clear European credit derivatives trades this week and will
begin back-loading banks' existing swap positions in the coming
weeks, an official said Tuesday.
The imminent expansion of ICE's clearing business for credit
default swaps comes as ICE steps up efforts to clear a broader
range of credit derivatives, following U.S. regulators' call for
participants to route more over-the-counter trades through
exchange-backed clearinghouses.
In Europe, Atlanta-based ICE will clear credit derivatives
trades through its London-based ICE Clear Europe facility, which
launched last fall and is in the final stages of securing
regulatory approval to handle credit derivatives, according to Dirk
Pruis, president of ICE's U.S. credit derivatives
clearinghouse.
Clearing, the process in which a central counterparty serves as
the buyer to every seller and the seller to every buyer, has
emerged as a key regulatory focus as financial authorities work to
rein in over-the-counter markets.
Last week, the U.S. Treasury announced a plan that would require
market participants to clear trades in standardized
over-the-counter derivatives, along with tougher reporting
requirements. European regulators are expected to follow with
similar initiatives.
By expanding the universe of OTC instruments that can be handled
by their clearinghouses, derivatives exchanges like ICE and
Chicago's CME Group Inc. (CME) stand to benefit as authorities
determine which products must be cleared to reduce risk and
increase transparency in the market.
Speaking at a Tuesday event organized by the Futures Industry
Association, Pruis said ICE will offer clearing for single-name
credit default swaps - products insuring against the default of
specific companies - in the U.S. and Europe starting in the third
quarter of this year.
Currently, ICE is clearing trades in the more standardized
credit default swap indexes.
In Europe, Pruis said ICE will be operationally ready to clear
iTraxx credit default swap index trades in the next few weeks,
ahead of a July target date set by European dealer banks to begin
clearing their credit derivatives business.
ICE has taken the lead in clearing over-the-counter credit
instruments following its purchase of The Clearing Corp., a
Chicago-based entity owned by a consortium of banks, which
thereafter signed on as clearing members of the exchange's U.S.
credit derivatives clearinghouse ICE Trust.
Since launching in early March, ICE Trust has cleared about $586
billion in notional credit derivatives trades.
Rival CME has developed its own U.S. offering with hedge fund
firm Citadel Investment Group called CMDX, but that platform has
yet to launch as CME works to secure support from a critical mass
of sell- and buy-side participants.
At launch, CMDX is set to begin clearing credit default swap
index trades as well as more than 500 single-name constituents of
those indexes.
Tim Doar, managing director of risk management for CME, said
Tuesday that CMDX will also look to clear credit derivatives on
sovereign debt, but it won't handle credit default swaps on
subprime debt or collateralized debt obligations.
CME has plans to launch a European version of CMDX, where it
will compete against ICE as well as Deutsche Boerse (DB1.XE),
LCH.Clearnet SA and NYSE Euronext (NYX).
-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117;
jacob.bunge@dowjones.com