ICE Clear Credit LLC

History

In 2009 ICE Trust became a New York chartered bank for purposes of Federal Reserve Act and was therefore eligible for membership in the Federal Reserve System.

By 2010, Intercontinental Exchange had cleared more than $10 trillion in credit default swaps (CDS) (Terhune Bloomberg Business Week 2010-07-29) through its subsidiaries, ICE Trust CDS (now ICE Clear Credit) in March 2009 and at ICE Clear Europe in July 2009 in New York, launched in 2008, (which also handles soft commodity futures/options) and ICE Clear Europe Limited in London, UK, launched in July 2009, (which also trades in energy futures) clearing entities for credit default swaps (CDS)(Terhune Bloomberg Business Week 2010-07-29). (CME Group comprises the Chicago Board of Trade and the Chicago Mercantile Exchange, the New York Mercantile Exchange and New York Commodities Exchange). Bloomberg's Terhune (2010) explained how investors seeking high-margin returns use Credit Default Swaps (CDS) to bet against financial instruments owned by other companies and countries. Intercontinental's clearing houses guarantee every transaction between buyer and seller providing a much-needed safety net reducing the impact of a default by spreading the risk. ICE collects on every trade.(Terhune Bloomberg Business Week 2010-07-29). Brookings senior research fellow, Robert E. Litan, cautioned however, "valuable pricing data will not be fully reported, leaving ICE's institutional partners with a huge informational advantage over other traders. He calls ICE Trust [now ICE Clear Credit] "a derivatives dealers' club" in which members make money at the expense of nonmembers (Terhune citing Litan in Bloomberg Business Week 2010-07-29). (Litan Derivatives Dealers’ Club 2010)." Actually, Litan conceded that "some limited progress toward central clearing of CDS has been made in recent months, with CDS contracts between dealers now being cleared centrally primarily through one clearinghouse (ICE Trust) [ICE Trust [now ICE Clear Credit] in which the dealers have a significant financial interest (Litan 2010:6)." However, "as long as ICE Trust [now ICE Clear Credit] has a monopoly in clearing, watch for the dealers to limit the expansion of the products that are centrally cleared, and to create barriers to electronic trading and smaller dealers making competitive markets in cleared products (Litan 2010:8)."

The U.S. Securities and Exchange Commission granted an exemption for IntercontinentalExchange to begin guaranteeing credit-default swaps. The SEC exemption represented the last regulatory approval needed by Atlanta-based Intercontinental. Its larger competitor, CME Group Inc., hasn't received an SEC exemption, and agency spokesman John Nester said he didn't know when a decision would be made.

On March 4, 2009, ICE announced that ICE US Trust, LLC (ICE Trust), a New York limited liability trust company, received regulatory approval from the Board of Governors of the Federal Reserve System to become a member of the Federal Reserve System and to serve as a clearing house and central counterparty for credit default swap (CDS) transactions, initially for North American CDS indexes and later adding liquid single-name swaps. Now known as ICE Clear Credit LLC it is subject to direct regulation and supervision by the CFTC and the SEC.

Also in March 2009 ICE acquired The Clearing Corporation (TCC). This acquisition provided the risk management framework, operational processing and clearing infrastructure for CDS clearing. ICE paid TCC's cash on hand at the close, $39 million more in cash and gave profit participation of less than 35% of the total to be paid to the 10 initial clearing members of TCC.