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Corporate Governance

: PomTalk

ICE US Trust Debuts First US-Based Credit Default Swap Market

By Jim Hodgson

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ICE US Trust LLC, a division of InternationalExchange Inc., began processing credit default swap trades on March 9. By obtaining provisional exemptions from the SEC and developing the necessary technology quickly, ICE Trust has established a viable, centralized counterparty between CDS index traders and has added tremendous transparency to this multitrillion dollar market. It was this market ? in its unregulated form ? that was largely responsible for the collapse of the credit markets last year.

Said SEC Chairwoman Mary Schapiro, ?it is critical that we bring increased transparency to credit default swaps by developing efficient and effective oversight of credit default swap clearing agencies.? CDS trading on the ICE Trust exchange will be conducted on a fixed-coupon basis. Thus, while coupon payments generated by a CDS will not change, the underlying value of that CDS will be allowed to fluctuate. These contracts will therefore trade much like bonds do. As such, daily settlement prices will provide firms with accurate data for mark-to-market accounting ? data sorely needed in the wake of events like the government?s $180 billion CDS-related bailout of AIG.

Full post as published by PomTalk on March 27, 2009 (boomark / email).