Exchanges and market participants pressed members of Congress on Tuesday to ensure clearinghouses for over-the-counter derivatives can be accessed by more than Wall Street banks.

The companies made their case as Congress gears up to enact major new regulations of derivatives markets that will likely force many types of over-the-counter derivatives to be processed through clearinghouses, which guarantee trades and cushion the market in the event of a default.

The calls for broader participation come as the only active U.S. clearinghouse for credit derivatives, the bank-backed ICE Trust platform, has cleared more than $800 billion in trades since launching in early March.

Membership in ICE Trust, operated by Atlanta-based IntercontinentalExchange Inc. (ICE), is essentially limited to the biggest dealer banks for the time being by virtue of a $5 billion minimum net worth and a $20 million contribution to the guaranty fund.

Major financial firms like JP Morgan (JPM) and Goldman Sachs (GS) that participate in the clearinghouse are also financial stakeholders in the clearing effort.

"The use of central counterparties by all market participants, including end users...should be encouraged by providing open and fair access to key infrastructure components," said Standard Credit Group Chief Executive Donald Fewer in testimony before the House of Representatives' Financial Services Subcommittee on Capital Markets.

At issue is when broker-dealers, hedge funds and other buy-side participants will be allowed to join the clearinghouse as members, or have collateral posted with banks on over-the-counter trades protected by the clearinghouse's guarantee fund.

The financial crisis has created momentum for the creation of clearinghouses for credit-default swaps and other exotic over-the-counter instruments, which some blame for contributing to the crisis.

The private sector, including ICE and CME Group Inc. (CME), have worked with regulators to develop clearing platforms for credit-default swaps, although CME has had trouble launching its platform as the big banks have preferred to clear through ICE Trust instead.

In addition, the Obama administration has called for drastic new reforms for the over-the-counter derivatives markets, including plans to mandate clearing for standardized products. The plan also goes a step further than some companies and Republican lawmakers may like by requiring exchange-trading of all standard over-the-counter products.

 
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Executives from brokerage firms Newedge Group and MF Global Ltd. (MF) have also called on ICE to broaden membership in the ICE Trust clearinghouse.

"When you look at the guarantee pool supporting any product, you want diversity ... small, medium and large companies trading different asset classes; that's what creates protection," said Bernard Dan, chief executive of MF Global, in a recent interview with Dow Jones Newswires.

"With ICE Trust, because the participation is very limited and it's a single product, that diversity is not there yet."

The CEO of Nasdaq OMX's (NDAQ) new interest rate swap clearinghouse, the International Derivatives Clearing Group, which stands to gain financially from the Obama proposal, also voiced concerns about clearinghouse membership Tuesday, although he didn't explicitly mention ICE.

"Any new clearing system must protect the smallest eligible market participant in a manner that is consistent with the largest market participant with the same rules and same level of access; otherwise the system will fail again," said Chris Edmonds.

ICE Chief Executive Jeffrey Sprecher told Dow Jones Newswires on Tuesday that ICE's credit derivatives clearinghouse will be operationally ready to extend clearing protection to cover member banks' customers in "weeks."

Sprecher said ICE has been working with the Federal Reserve and the Federal Deposit Insurance Corp. on firming up the process, similar to segregation of customer funds in futures markets.

However, banks have targeted Dec. 15 as the date by which they plan to offer segregated funds, according to a recent letter to the New York Federal Reserve.

Sprecher said ICE will maintain its high membership standards for the time being because of the "extreme risk" particularly associated with single-name credit derivatives.

CME has said that its credit derivatives clearing service, developed with hedge fund firm Citadel Investment Group, will be open to buy-side participants at launch and will provide for segregation of customer funds.

CME Executive Chairman Terry Duffy told Dow Jones Newswires that the Chicago-based exchange operator hopes to launch its credit-default swap clearing platform by the end of the year.

-By Jacob Bunge, Dow Jones Newswires; 312-750-4117; jacob.bunge@dowjones.com

-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@dowjones.com