Both IntercontinentalExchange Group Inc. (ICE) and CME Group Inc. (CME) announced the receipt of approval from the European Securities and Markets Authority’s (:ESMA) to have their own trade repository in Europe. A trade repository or swap data repository is an authoritative electronic platform that registers key information regarding open over-the-counter (:OTC) derivative trading.
These regulations are part of the mandates under the European Market Infrastructure Regulation (:EMIR), which require swap derivatives to be channelized through clearinghouses and increase databases in order to generate transparency in the swaps market.
Hence, such trade repositories are built to better collect and understand information of the fluctuations in trade prices and volumes. This process will also help the exchange clients to determine the swaps that can be cleared, which again can aid in minimizing defaults.
Europe’s EMIR is similar to the U.S. Commodity Futures Trading Commission (:CFTC). In Jun 2012, ICE had launched ICE Trade Vault as the first swap data repository (SDR) that received approval from the CFTC. Since then, ICE Trade Vault U.S. has accepted over 17 million trades. On the other hand, CME Group operates in the U.S. through one of only three swap data repositories which were authorized in Nov 2012.
Accordingly, ICE Trade Vault Europe and CME European Trade Repository have been given the green signal to submit trades across all authorized derivative asset classes that include interest rates, foreign exchange (:FX), credit, commodities and equities.
Moreover, the trade repositories of both ICE and CME Group will be able to accept cleared and non-cleared, bilaterally settled, OTC and exchange-traded derivatives (ETDs) executed on venues anywhere in the world.
The attainment of the approval in Europe opens an array of opportunities for both the companies. It will also provide both ICE and CME Group with the required swiftness and reliability for their OTC derivatives.
It is assured that the stringent regulations passed in the last couple of years were only to minimize risk and maintain stability. Hence, the exchange giants — ICE and CME Group had been constantly modifying its infrastructure to suit the new regulations, which further justifies the granted approvals.
While ICE carries a Zacks Rank #2 (Buy), CME Group holds a Zacks Rank #3 (Hold). Other better-ranked financial stocks include Bofl Holdings Inc. (BOFI) and Hilltop Holdings Inc. (HTH), both of which carry a Zacks Rank #1 (Strong Buy).