Derivatives Clearing Group Decides Against Registration
By Ben Protess
December 28, 2010
The world’s largest clearinghouse for credit-default swaps, ICE Trust, has had second thoughts about registering with regulators, citing concerns over new rules devised to bring transparency to the $600 trillion derivatives market.
ICE Trust, a division of the Intercontinental Exchange, the big derivatives exchange, applied to be a derivatives clearing organization with the Commodity Futures Trading Commission in November. Last week, the company quietly withdrew its application.
In a Thursday letter to the commission, which was released on Tuesday, a lawyer for ICE Trust said the company changed its mind because of “significant changes proposed to” regulations for clearing organizations.
The gesture may be symbolic. In July, ICE Trust will automatically be granted status as a clearinghouse, under the Dodd-Frank financial overhaul law.
A spokesman for ICE declined to comment.
ICE, which has cleared more than $14 trillion of credit-default swaps since it started in 2009, said it had applied with the commission to bring its operations into compliance more quickly and to attract new customers before the rules went into effect in July. But the clearinghouse decided to hold off, owing to uncertainty around the process.
Over the last several weeks, the agency has outlined several proposals for clearinghouses, including a plan to limit conflicts of interest and to open the market to more competition. ICE, the dominant player in derivatives clearing, has been criticized in the past for pushing aside smaller players.
Under the Dodd-Frank rules, the trading commission and the Securities and Exchange Commission have broad authority to regulate swaps — complex financial instruments, some of which collapsed during the financial crisis.
The law requires big banks and other financial institutions to process the opaque investments through regulated clearinghouses, which serve as a backstop in case one party defaults. The rules also require swaps to be traded on regulated exchanges or on so-called swap execution facilities.
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IntercontinentalExchange (NYSE: ICE) is an American financial company that operates Internet-based marketplaces which trade futures and over-the-counter (OTC) energy and commodity contracts as well as derivative financial products. While the company's original focus was energy products (crude and refined oil, natural gas, power, and emissions), recent acquisitions have expanded its activity into the "soft" commodities (sugar, cotton and coffee), foreign exchange and equity index futures.
Currently ICE is organized into three business lines:
* ICE Markets — futures, options, and OTC markets. Energy futures are traded via ICE Futures Europe; soft commodity futures/options are handled by ICE Futures U.S.
* ICE Services — electronic trade confirmations and education.
* ICE Data — electronic delivery of market data, including real-time trades, historical prices and daily indices.
Contracts sold through ICE Futures U.S. are processed through a subsidiary, ICE Clear U.S. (ICEUS). Energy futures and OTC contracts are currently cleared externally, through LCH.Clearnet, Ltd., but ICE has announced plans to transition these operations to a new subsidiary, ICE Clear Europe (ICEU), by mid-2008.
Headquartered in Atlanta, ICE also has offices in Calgary, Chicago, Houston, London, New York and Singapore, with regional telecommunications hubs in Chicago, New York, London and Singapore.
In the late 1990s, Jeffrey Sprecher, ICE's founder, chairman, and Chief Executive Officer, acquired Continental Power Exchange, Inc. with the objective of developing an Internet-based platform to provide a more transparent and efficient market structure for OTC energy commodity trading. In May 2000, IntercontinentalExchange (ICE) was established, with its founding shareholders representing some of the world's largest energy traders. The company's stated mission was to transform OTC trading by providing an open, accessible, multi-dealer, around-the-clock electronic energy exchange. The new exchange offered the trading community better price transparency, more efficiency, greater liquidity and lower costs than manual trading.
In June 2001, ICE expanded its business into futures trading by acquiring the International Petroleum Exchange (IPE), now ICE Futures Europe, which operated Europe's leading open-outcry energy futures exchange. Since 2003, ICE has partnered with the Chicago Climate Exchange (CCX) to host its electronic marketplaces. In April 2005, the entire ICE portfolio of energy futures became fully electronic. In April 2010 ICE bought CCX's owner Climate Exchange plc. Climate Exchange plc also owns the European Climate Exchange (ECX).
ICE became a publicly traded company on November 16, 2005, and was added to the Russell 1000 Index on June 30, 2006. The company expanded rapidly in 2007, acquiring the New York Board of Trade (NYBOT), ChemConnect (a chemical commodity market), and the Winnipeg Commodity Exchange. In March 2007 ICE made an unsuccessful $9.9 billion bid for the Chicago Board of Trade, which was instead acquired by the Chicago Mercantile Exchange.
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Hawks Cafe, Captain Sherlock and Abel Danger allege that the root authority for ICE trades will be with D2 Banking at One Canada Square and a joint venture between the Worshipful Company of Scriveners and the Honourable Company of Master Mariners whose registered address is HQS Wellington near Temple station.
HMS Wellington (launched Devonport, 1934) is a Grimsby-class sloop, formerly of the Royal Navy. During the Second World War, she served as a convoy escort ship in the North Atlantic. She is now moored alongside the Victoria Embankment, at Temple Pier, on the River Thames in London as the headquarters ship of the Honourable Company of Master Mariners where she is known as HQS Wellington. It was always the ambition of the founding members of the Company to have a Livery Hall. Up to the outbreak of war in 1939, various proposals were examined, including the purchase of the sailing ship, the Archibald Russell.