Wednesday, November 4, 2009

CDS clearing plan on track, says ICE

Posted in the Financial Times by Hal Weitzman:

IntercontinentalExchange (ICE), the electronic futures exchange group, said on Tuesday that nearly all new credit default swap contracts would be cleared centrally by the end of the month, fulfilling a key demand from regulators for reducing risk in the over-the-counter derivatives market.

ICE has taken a strong lead among exchanges in the race to clear credit default swaps, the OTC contracts widely blamed for aggravating the financial crisis, prompting Congress to demand that most be cleared centrally in order to guarantee the creditworthiness of both sides.

While rivals have stalled or failed to attract much interest, ICE’s collaboration with the major CDS dealers has enabled it to clear more than 43,000 index trades with a notional value of more than $3,500bn. ICE plans to launch clearing for single-name CDS contracts this month.

Noting that the big banks, which are the primary CDS dealers, had pledged to clear 95 per cent of new index trades by the end of November, Jeff Sprecher, ICE chief executive, said the industry was on track. “I was with a group of dealers on Friday and they are close to making good on that commitment so it is a very high percentage right now that’s going in,” he said.

Mr Sprecher added that the credit derivative market, which wilted in the financial crisis, was starting to bounce back. “The banks are hiring in the credit derivative space,” he said.

“In fact, we hear there is tremendous competition to bring in qualified people into this space. There is a real anticipation from a staffing standpoint and a systems standpoint that we’ve been working on that this market is going to recover and recover strongly.”

He made the comments as ICE reported quarterly results on Tuesday that beat expectations, with net profits up 16 per cent from last year, and record revenues and volumes.

ICE’s net income for the quarter was $86.9m or $1.18 per share, up from $75m or $1.04 per share in the same period a year earlier and ahead of analysts’ average forecasts of $1.15 per share. Revenues of $256.3m were up 27 per cent from last year and broadly in line with expectations.

Combined average daily volume at ICE’s futures exchanges in New York, London and Winnipeg increased by 24 per cent from last year to a record 1.06m contracts. Average daily volume at ICE’s futures markets was 1.08m in October.

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