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Intercontinental Exchange (ICE) Introduces CDS Index Options

Intercontinental Exchange, Inc. ICE has started offering clearing of Credit Default Swap (CDS) Index Options via ICE Clear Credit in a bid to further standardize the marketplace.

ICE Clear Credit, the world’s first CDS clearing house, has rolled out clearing of CDS index options based on CDX North American investment grade and high-yield indices, with plans to add index options based on the iTraxx Europe indices next year. iTraxx Europe is a collection of indexes for the credit default swap market in Europe, Australia, and Asia, which allows market makers and active participants in the swaps market to take the other side of trades for a short period and provide liquidity in these markets.

With a comprehensive product offering, robust end-of-day pricing methodology and capital efficiencies generated through a sophisticated risk model, ICE Clear Credit provides customers a complementary solution while mitigating systemic risk in the marketplace.

The newly launched CDS Index Options will provide greater capital efficiencies, price discovery and risk management to the CDS market. It will provide an opportunity to access CDS markets and manage risk efficiently and cost-effectively. It will leverage a similar approach to Single Name CDS and Index clearing to determine executable levels for Options and provide open, convenient access to daily prices. Also, it will provide innovative exercise and assignment capabilities, which is provided to Self-Clearing Members, Futures Commission Merchants and Clients.

The CDS Index Options will utilize ICE’s market infrastructure and robust risk management methodology. CDX options clearing is expected to enhance standardization and transparency in the market. It will drive efficiencies, improve risk management and further promote the product. Cross-margining across indices and options and ICE Clear Credit’s platform is projected to bring capital efficiencies and enhance operational risk management on expiry dates.

In the first quarter of 2020, ICE Clear Credit cleared approximately $7.5 trillion notional amount of CDS instruments, the greatest amount of any quarter in its history. This represented an increase of 45% over the next-biggest quarter and brought the total cleared notional amount since inception to over $100 trillion. Also, it added clearing for 11 new corporate and sovereign single name CDS, which expanded CDS risk management offering and boosted services to deliver the most comprehensive and globally diversified suite of cleared CDS instruments to customers.

CDS clearing revenues increased 14.7% in the first nine months of 2020 driven by record buy-side activity in terms of index notional amount cleared during the period driven by heightened market volatility related to COVID-19.

Shares of this Zacks Rank #3 (Hold) industry player have gained 7.8% in the past year, outperforming the industry’s increase of 1.3%. The company’s policy of ramping up growth and capital position should continue to drive share price higher.

Stocks to Consider

Some better-ranked insurance stocks include MarketAxess Holdings MKTX, Envestnet ENV and Evertec EVTC, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

MarketAxess surpassed estimates in each of the last four quarters. It has a trailing four-quarter earnings surprise of 2.71%, on average.

Envestnet surpassed estimates in each of the last four quarters. It has a trailing four-quarter earnings surprise of 18.42%, on average.

Evertec surpassed estimates in three of the last four quarters. It has a trailing four-quarter earnings surprise of 17.87%, on average

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