ICE Adds Muscle to CCorp's Central ClearingHouse for Credit Default Swaps

Exchange rivals are vying to set up a central clearinghouse for credit default swaps (CDS), which have been linked to turmoil in financial markets.

On Friday, InterContinental Exchange (ICE) said it was joining forces with Clearing Corporation (CCorp), a Chicago-based provider of global clearing services, which is backed by the large derivatives dealers. ICE is also working with Markit and RiskMetrics, according to its statement.

With ICE jumping into the fray, there are at least four entities ready to establish a CDS clearing house, including ICE-CCorp, CME Group-Citadel, Eurex and NYSE Euronext Liffe, which is up from zero a few short months ago, noted Kevin McPartland, senior analyst at TABB Group in New York.

Last Monday, CME Group, the parent of Chicago Mercantile Exchange, unveiled a joint venture with hedge fund manager Citadel Investment Group to launch an exchange-like execution and clearing platform for CDS trades in early November. As the world’s largest futures exchanges for listed derivatives, CME has experience operating a futures clearinghouse. Though CME and Citadel will jointly own the platform, they anticipate reducing their stakes as they bring other partners in. A division of Citadel would also make markets in credit default swaps and bring more price transparency to the OTC market.

“From the tone of the CME-Citadel announcement, they sound fired up and ready to go,” said McPartland. “This basically makes two end-to-end solutions competing in the U.S. Both offer trade capture, trade processing and central clearing,” observed Kevin McPartland, senior analyst at TABB Group in New York, referring to the CME-Citadel and ICE-CCorp platforms.

Atlanta-based ICE could have an edge in that it owns Creditex, the leading interdealer credit derivatives execution platform used by all the dealers, and T-Zero, a provider of trade-processing services to buy and sell-side firms. In addition, ICE said it’s setting up ICE Trust as a New York Limited Trust Company to function as a global clearinghouse and central counterparty for CDS transactions. ICE Trust plans to become a member of the Federal Reserve System.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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