Coming in under the implementation deadline of Dodd-Frank Wall Street Reform and Consumer Protection Act rules, IntercontinentalExchange (ICE), announced Friday that ICE Trust U.S., ICE's North American credit default swap (CDS) clearing house, will complete its transition to a Commodity Futures Trading Commission (CFTC)-regulated Derivatives Clearing Organization (DCO) and Securities and Exchange (SEC)-regulated Securities Clearing Agency (SCA) by Saturday, July 16.
In addition, the clearing house will convert from a New York State Banking Department and Federal Reserve regulated bank and will be known as ICE Clear Credit. ICE Clear Credit will continue clearing the 168 products it offers across North American CDS indices (CDX) and single-name instruments as a DCO and SCA.
Dodd-Frank provides for a defined transition path to ensure systemic risk mitigation, market stability and continuity of service. More than $725 billion in open interest has been established since the launch of ICE Trust in March 2009 (see Daily GPI, Nov. 22, 2010; March 10, 2009). ICE, which operates regulated global futures exchanges, clearinghouses and over-the-counter (OTC) markets, said it established ICE Trust, the world's first operational CDS clearing house, in response to calls from policymakers and market participants for greater transparency in the credit markets.
The CFTC Thursday issued an order clarifying the effective date of the provisions in the swap regulatory regime established under the Dodd-Frank financial reform law, providing temporary relief from certain provisions that would otherwise kick in as of Saturday, until the CFTC completes the rulemakings specified in the order (see Daily GPI, July 15).
"ICE has worked extensively with market participants for the past year to ensure a smooth transition," said Chris Edmonds, president of ICE Trust. "As Dodd-Frank regulations are finalized, we will continue to increase the number of clearing members and build on ICE's leadership in providing market transparency and clearing solutions for the OTC markets."
With the transition from Federal Reserve and New York State Banking Department oversight, ICE Clear Credit will be regulated by the CFTC for broad-based index products and by the SEC for single-name products. The DCO and SCA structure also provides full customer protection under the CFTC's and SEC's regulatory framework, including margin segregation and portability, ICE said.
ICE reported that as of July 8, its credit default swap clearinghouses cleared $20 trillion in gross notional value with aggregate open interest of $1.5 trillion. ICE Trust cleared $11.9 trillion of gross notional value, including $980 billion in single name clearing, resulting in open interest of $727 billion. ICE Trust also cleared $7.4 billion in buy-side transactions. ICE Clear Europe cleared euro 5.9 trillion ($8.1 trillion) of gross notional value of CDS transactions, including euro 952 billion ($1.3 trillion) in single-name CDS, resulting in euro 538 billion ($773 billion) of open interest.
ICE Trust and ICE Clear Europe began clearing single-name instruments, which reference individual corporate debt instruments, in December 2009, offering a total of 249 single names. ICE Trust has completed introduction of single names included in the Investment Grade CDX. The exchange said it has developed a proprietary risk assessment methodology specifically for single-name CDS contracts, which complements the risk assessment methodology employed in clearing CDS indexes, recognizing the unique risk profile of single-name instruments.
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