ICE to Begin Portfolio Margining for Bank Credit Swap Trades
Intercontinental Exchange Inc. (ICE), owner of the world’s largest credit-default swaps clearinghouse, said it received approval to lower its bank members’ cost to guarantee their proprietary positions.
The company received the necessary approvals from the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission last month, Atlanta-based Intercontinental said in an e-mailed statement today.
Intercontinental, which owns ICE Clear Credit in New York and ICE Clear Europe in London, is petitioning regulators to allow the same change for customers of its bank members, such as hedge funds or money managers that use clearing services, the company said. The margining change only applies to ICE Clear Credit, the company said.
“Customer portfolio margining is a key prerequisite to making CDS clearing attractive to clients,” Tom Benison, managing director at JPMorgan Chase & Co. (JPM), one of the bank members of the credit-swaps clearinghouses, said in the statement. “Clients currently can avail themselves of offsetting trades in the bilateral world, so it’s important that they have the same ability within the clearing framework.”
Regulators in the U.S. and Europe are mandating the use of clearinghouses for most swaps after the unregulated trades contributed to the financial crisis that began in 2007.
Clearinghouses, which are capitalized by their members, are meant to reduce systemic risk by absorbing and sharing responsibility if a member defaults on its payment obligations. They use daily margin calls to keep accounts current and provide regulators with access to prices and positions.
To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net.
To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.
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