IntercontinentalExchange Inc. (ICE) announced its intention of launching ICE Trade Vault as a swap data repository (SDR), after it received a provisional approval from the Commodity Futures Trading Commission (:CFTC) yesterday.
Accordingly, ICE plans to initially launch ICE Trade Vault as a SDR for the asset classes that include commodity and energy, interest rate swaps (IRS), credit default swaps (:CDS) and foreign exchange (:FX) contracts. However, the company will primarily concentrate on commodity and energy asset classes and will eventually upgrade to tap the opportunities in other asset classes within the approval list.
While CFTC has granted a provisional approval to ICE, the final regulations regarding SDR will likely be completed by the end of this year. These regulations are a part of the mandates under the Dodd-Frank Act enacted in 2010, which required swap derivatives to be channeled through clearinghouses and increase databases in order to generate transparency in the swaps market.
Hence, such swap 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. Nevertheless, this approval has opened an array of opportunities for the company as ICE Trade Vault is the first SDR to be provisionally registered by the CFTC.
Additionally, ICE Trade Vault is also expected to benefit from the ICE’s own efficiently operating over-the-counter (:OTC) markets and ICE eConfirm – an industry benchmark for confirmation of electronic trades. While ICE Trade Vault’s beta version has already hit the market, its production version is expected to be launched later this year.
The new information data base application will further boost the efficiency of swap trades, while also making it compliant with regulations and new reporting requirements. This again ensures a secure, transparent and cost-efficient trading within ICE. Consequently, ICE Trade Vault has already enrolled about 250 customers ahead of the launch.
Over the past couple of years, the market was already aware that stringent regulations will be forwarded. However, not many players in the market would be prepared for it. The 2008 economic turmoil impelled the regulators to change and make new rules in order to minimize risk and maintain stability.
While ICE has been constantly modifying its infrastructure to suit the new regulations, it is to be seen going forward how much the company’s peers, CME Group Inc. (CME) and CBOE Holdings Inc. (CBOE) among others, are prepared for it.
Currently, ICE carries a Zacks Rank #3, translating into a short-term Hold rating and a long-term Neutral recommendation.
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