ICE US Trust, a New York limited liability trust company owned by US futures exchange group IntercontinentalExchange (ICE), has started clearing and processing credit default swap (CDS) index transactions in the North American Markit CDX indices. It expects to start clearing liquid single-name CDS in the coming months. Market data firm Markit will produce daily settlement prices required for mark-to-market pricing, margining and clearing.
“ICE Trust has been designed to further enhance well-functioning CDS markets by reducing counterparty and systemic risks, and increasing transparency and capital efficiency in the CDS markets,” said Jeffrey C. Sprecher, chairman and CEO of ICE, in a statement. “ICE will continue to work closely with the Federal Reserve and other regulatory bodies in the US and abroad in implementing risk management solutions for the vital credit markets.”
ICE has become the latest exchange group to launch a CDS clearing facility following regulatory calls to introduce central counterparties into the CDS marketplace. NYSE Euronext’s UK derivatives exchange, Liffe, added CDS clearing capabilities to its Bclear over-the-counter derivatives clearing service in December. Several other exchanges, including the Chicago Mercantile Exchange, have plans to launch similar facilities, and ICE itself expects to launch a European CDS clearer, ICE Trust Europe, in the first half of this year.
ICE US Trust’s CDS risk management framework, operational processes and infrastructure were developed by The Clearing Corporation, a derivatives clearing house, which ICE finalised the purchase of on 6 March.
The launch follows the receipt of approvals from several regulators. On 6 March, ICE US Trust received an exemptive order from the US Securities and Exchange Commission permitting it to start clearing CDS transactions, and approval from the New York State Banking Department (NYBD). On 5 March, NYBD issued ICE US Trust with an authorisation certificate to act as a regulated bank in New York, and on 4 March, the operation received approval from the Federal Reserve’s board of governors.
Membership of ICE US Trust is open to all qualifying buy-side and sell-side institutions. Though owned by ICE, ICE US Trust is an independent clearing house, and all CDS market participants will be able to access the service.