ICE US Trust, the clearinghouse of The Intercontinental Exchange (ICE), began clearing credit default swaps (CDS) on March 9, following the closing of ICE’s acquisition of The Clearing Corporation (TCC) on March 6 and regulatory approval by the Federal Reserve on March 4. ICE US Trust will clear North American Markit CDX indexes, followed by single-name CDSs.
At press time, CME Group still waited for the SEC to grant an exemption for its CDS clearing solution, CMDX, a joint venture with Citadel Investment Group. Although CME Group did not have a date, a spokesperson said “we believe the SEC will grant our special exemption soon.” NYSE Euronext’s Liffe-LCH.Clearnet CDS clearing solution through Bclear received SEC permission to provide CDS clearing in the United States in December.
John Jay, senior analyst at Aite Group, says ICE has an advantage over its CDS clearing competitors because of the TCC acquisition and backing by nine investment banks. “Those [investment banks] have a lot to do with providing a large part of liquidity for that marketplace.”
Kevin McPartland, senior analyst at Tabb Group, says “It’s a pretty common conception that ICE is in the lead because they have the backing of the dealers through the Clearing Corp.”
But Jay adds that CME’s partnership with Citadel could help its efforts. “Citadel is an important hedge fund, and who’s to say whether the dealer firms on the sell side don’t want to keep the marbles for themselves. Now you’ve got the sell side with ICE and a major hedge fund with the CME. That might dictate which one’s going to be more successful,” he says.
McPartland says that although multiple clearing solutions will come about, they’re likely to get culled to two or three. “The market needs competition, but not that much competition. There’s a long way to go and all of the [platforms] have their own pros and cons,” he says.