IntercontinentalExchange (ICE) has received regulatory approval from the Federal Reserve to serve as a clearing house and central counterparty for credit default swap (CDS) transactions.
ICE says it intends to seal its acquisition of The Clearing Corporation within a week, after the US Department of Justice waved though its takeover proposal on Monday.
TCC has developed the CDS risk management framework, operational processes and infrastructure for ICE Trust's clearing operations, which will begin processing and clearing positions held by the members of the clearing house when the acquisition closes. Clearing of North American CDS indexes will be followed by liquid single-name credit default swaps, says the group.
ICE, along with its US rival the Chicago Mercantile Exchange, is also seeking to enter the European market through a locally-approved subsidiary operation. In Europe, the company will face competition from LCH.Clearnet, Liffe and Eurex.
Swiss-German derivatives exchange Eurex had initially planned to register in the US, but says it will now concentrate its efforts on the European market. The switch in approach follows the European Commission's demands for the development of an EU-housed and approved CDS clearing operation.
"We would like to focus on a European Union solution with global products while other competitors are actively going for separate US and European solutions," Thomas Book, the board member at Eurex responsible for clearing, told Bloomberg in an interview. "Our priority is not to be the chosen one in the US, but to be the chosen one in Europe."
He says the clearer will be "technically ready" in the first quarter, but doesn't plan to start until the market is ready.
While competition intensifies, some are questioning whether the creation of a clearing house amounts to overkill for a market that has shrunk 56% since 2007 to $27 trillion.
Despite the concerns, a Tabb Group report issued Tuesday estimates annual revenues for central clearing of CDSs to reach nearly $140 million by 2011, assuming 55% of outstanding contracts are migrated to a central clearing house.