ICE Credit Derivatives Clearing Platform Sees Volume Double
March 23 2009 - 3:15PM
Dow Jones News
IntercontinentalExchange Inc.'s (ICE) platform for clearing
credit default swaps saw volume double in the service's second week
of operation, the exchange reported Monday.
ICE US Trust cleared $14 billion in credit default swap trades
for the week ended Friday, up from about $7 billion the previous
week, according to the Atlanta-based exchange.
Open interest was $4 billion, up from $3 billion in its first
week of operation.
The platform, structured as a U.S. Trust bank and regulated by
the New York Federal Reserve, went live March 9 after getting
clearance from the Securities and Exchange Commission, the final
piece of a protracted approval process.
ICE US Trust now clears trades in two CDX credit default swap
indexes, and the exchange anticipates adding additional indexes
each week.
The Wall Street banks backing ICE US Trust are still in the
process of back-loading existing credit derivatives trades into the
clearinghouse, according to ICE officials, and they don't expect to
start clearing new transactions until the end of March.
"All clearing members of ICE Trust have been actively
participating from week one, and activity levels have been as
planned in consultation with participants and regulators," said ICE
spokeswoman Kelly Loeffler.
The trades cleared by ICE represent the first of what exchange
groups and financial regulators hope will be a new way forward for
credit default swaps, which serve as insurance against defaults on
corporate or sovereign debt.
Central counterparty clearing is seen as a way to increase
transparency and reduce systemic risk in the estimated $27 trillion
market.
NYSE Euronext (NYX), through its Liffe derivatives arm, has also
launched credit derivatives clearing in the U.K., though that
platform has seen no activity as participants work through
connectivity issues and consider competing platforms.
Chicago-based CME Group Inc. (CME), with the hedge fund firm
Citadel Investment Group, has developed a solution for clearing and
trading credit derivatives that has received U.S. regulatory
approval but has yet to launch.
Credit derivatives traders have signaled their willingness to
clear swap trades. A recent survey by risk-management technology
firm Sophis found that participants intend to direct at least 50%
of their CDS trades onto central clearing platforms.
ICE shares were recently at $75.91, up 6%.
-By Jacob Bunge, Dow Jones Newswires; 312-750-4117;
jacob.bunge@dowjones.com