The same dealer banks backing a U.S. credit derivatives clearing solution launched by IntercontinentalExchange Inc. (ICE) are seen to support the exchange's European solution, due in July.

Atlanta-based ICE, which launched the first U.S. clearinghouse for credit default swaps Monday, will also incorporate segregation of customer funds into its U.S. offering ICE US Trust, the exchange's chief executive said Thursday.

ICE Chief Executive Jeffrey Sprecher said in an interview with Dow Jones Newswires that ICE's agreement to acquire the bank-backed Clearing Corporation, a deal announced last fall that was seen helping ICE win the backing of major banks, included a provision to extend credit derivatives clearing to Europe "if it was required."

Sprecher said that members agreed it was required; however, there exists no formal commitment for the banks to use the planned platform.

ICE announced last month that it would launch ICE Trust Europe by July, when exchange officials anticipate European credit default swap indexes will be ready for clearing.

Since its launch earlier this week, ICE US Trust's clearing member banks have begun backloading old index trades into the clearinghouse, a process ICE initially estimated would take about a month.

Sprecher said new trades could begin clearing in late March.

ICE, a derivatives exchange company operating futures markets in energy, agriculture and equity indexes, is one of several exchanges seeking to clear trades in the $27 trillion credit default swap market.

Chicago-based CME Group Inc. (CME) has developed a platform with Citadel Investment Group that awaits final regulatory approval, and NYSE Euronext (NYX) plans to develop its own U.S. offering.

Clearing credit derivatives trades is being pushed by regulators in the U.S. and Europe, who see a central counterparty model reducing risk and adding transparency to a historically opaque market.

Segregation of Funds An Option For ICE US Trust

ICE US Trust will also provide for segregation of customer funds, a key protection for firms trading credit derivatives through the platform's clearing member banks.

Segregating customer funds, a process that generally takes place at the futures commission merchant level, protects a client's capital in case the bank through which it's trading credit derivatives files for bankruptcy - a prospect that has become more real following the fall of Lehman Brothers.

If customer funds aren't segregated in a clearinghouse, a hedge fund or proprietary trading firm whose prime broker goes down - for instance, Lehman Brothers - could find the initial margin it posted with that firm locked up in bankruptcy proceedings.

"Members have agreed to offer this as an option," Sprecher said, noting that segregating customer funds could raise the overall cost for the end user.

As things stand, Sprecher said ICE's swaps clearinghouse will maintain its high threshold for membership, which includes a $5 billion minimum net worth and a minimum $20 million contribution to the guaranty fund for starters.

The standards have been criticized by other exchanges and observers as maintaining banks' dominance in the credit derivatives market.

Sprecher said that the clearinghouse will revisit membership requirements in ICE US Trust after existing positions are loaded in, and there is a better view of the clearinghouse's overall risk.

Meanwhile, as part of an ongoing effort by the International Swaps and Derivatives Association, Sprecher said ICE is working with the clearing member banks of ICE US Trust on the rules around standardizing trades for clearing.

As these proposals are adopted by the banks, which drive the lion's share of volume in CDS trading, he said the rest of the market is likely to eventually adopt the same standards.

Sprecher said dealer banks will likely transition to new credit default swap contract standards around the April 8 roll into series 12 of the CDX credit default swap indexes.

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