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Federal Reserve Bank of Atlanta 2009 Financial Markets Conference Chuck Vice, President and COO, ICE May 12, 2009. www.theice.com. ICE INTRODUCTION.

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  1. Federal Reserve Bank of Atlanta2009 Financial Markets Conference Chuck Vice, President and COO, ICE May 12, 2009 www.theice.com

  2. ICE INTRODUCTION ICE is a leading global exchange operator with proprietary trading technology, three regulated futures exchanges and clearing houses in the energy, agricultural commodities, equity index and currency markets; ICE also operates leading OTC energy and credit derivatives markets and clearing houses • Global distribution • Screens distributed in 57 countries • Regulated futures exchanges and clearing houses in the U.S., Europe and Canada, as well as Global OTC markets • Diversified markets • Energy, agricultural, equity index, currency and credit products • Futures, OTC and Options • Leading-edge technology • Sophisticated, scalable infrastructure, highly accessible platform • ICE offices in Asia, Canada, Europe and the U.S.

  3. DERIVATIVES PRODUCT DEVELOPMENT OTC - Cleared OTC - Bilateral Futures • Fully standardized products • Contracts marked-to-market and margined daily by CCP • Contract specifications designed by the exchange & approved by regulators • Primarily electronically traded • Individuals may participate • Increased standardization • Central clearing house (CCP) functions as buyer to seller, seller to buyer • Contracts marked-to-market & margined daily • Increased electronic trading • Professionals-only market • New risks emerge • Dealers & customers develop products in response • Highly customized • Lower liquidity • Counterparty risk

  4. ICE U.S. NATURAL GAS SWAPS MARKET OTC CLEARING INCREASES LIQUIDITY, TRANSPARENCY AND PARTICIPATION

  5. OTC CLEARING AVOIDS COST AND RISK ASSOCIATED WITH BILATERAL TRADING Bilateral Trading Costs and Risks • Bilateral creditworthiness monitoring of large number of counterparties • Frequent counterparty disagreements on value and the size of resulting collateral calls • Trade confirmation and reconciliation • Trade reporting and warehousing • Trade settlement • Trade compression or tear-up Benefits of OTC Clearing • Risk mutualization among market participants • Robust centrally managed risk management • Efficient multilateral netting • Transparency and reporting

  6. ICE CLEARING HOUSE OVERVIEW DIVERSE MARKETS, PRODUCTS AND SERVICES ICE Trust Regulator: Fed, NYSBD ICE Clear U.S. Regulator: CFTC ICE Clear Europe Regulator: U.K. Financial Services Authority Energy - OTC • North American Natural Gas • North American Power • Global Oil and Refined Products Energy - Futures • Crude Oil • Gas Oil • European Emissions • Coal • UK Natural Gas & Power CDS - OTC • North American CDX indices • To launch North American single names in 3Q09 CDS - OTC • To launch European iTraxx indices in 2Q09 • To launch European single names in 3Q09 Agricultural - Futures • Sugar • Coffee • Cotton • Cocoa • OJ Financial - Futures • Russell Index • FX Related CDS Services • Brokerage • Delta neutral auctions • Trade compression • Credit event auctions • STP, Allocations, and Novations • Auto recouponing of single name CDS

  7. ICE CDS CLEARING RISK MANAGEMENT FRAMEWORKWATERFALL APPROACH FOR MANAGING SYSTEMIC RISK • Ensure each clearing member has sufficient financial resources, operational capabilities and risk management experience Membership Criteria • Collateralize potential clearing member portfolio loss under distressed market conditions Risk Margin / Initial Margin Requirement • Adjust clearing member collateral through a daily debit/credit based on EOD mark-to-market Mark-To-Market / Variation Margin • Identify additional margin requirements based on a comparison of unrealized P/L to Risk Margin, understanding unusual market fluctuations, etc. Intra-day Risk Monitoring Special Margin Call Execution • ICE participation in the Guaranty Fund (up to $100 million) ICE Capital Contribution * • Mutualize losses under extreme but plausible market scenarios Guaranty Fund • Oblige clearing members to contribute a capped amount of additional default funding Limited One-Time Assessment * ICE has committed to capital contributions for ICE Trust and ICE Clear Europe CDS guaranty funds only

  8. HYPOTHETICAL CDX PORTFOLIOS Portfolio Position Instrument in $ MM Initial Margin(in $ MM) Guaranty Fund(in $ MM) Comments CDX-NAIGS9V1-5Y -100 CDX-NAIGS9V1-10Y -100 CDX-NAIGS10V1-5Y -100 CDX-NAIGS10V1-10Y -100 CDX-NAIGHVOLS9V1-5Y -100 CDX-NAIGHVOLS10V1-5Y -100 CDX-NAHYS9V2-5Y -100 CDX-NAHYS10V1-5Y -100 $20.3 $27.5 Increased margin for higher risk (all short) portfolios All Short Position Balanced Position CDX-NAIGS9V1-5Y -100 CDX-NAIGS9V1-10Y -100 CDX-NAIGS10V1-5Y -100 CDX-NAIGS10V1-10Y -100 CDX-NAIGHVOLS9V1-5Y 100 CDX-NAIGHVOLS10V1-5Y 100 CDX-NAHYS9V2-5Y 100 CDX-NAHYS10V1-5Y 100 $16.0 $1.7 +4.3 +25.8 -2.1 -0.2 All Long Position CDX-NAIGS9V1-5Y 100 CDX-NAIGS9V1-10Y 100 CDX-NAIGS10V1-5Y 100 CDX-NAIGS10V1-10Y 100 CDX-NAIGHVOLS9V1-5Y 100 CDX-NAIGHVOLS10V1-5Y 100 CDX-NAHYS9V2-5Y 100 CDX-NAHYS10V1-5Y 100 $13.9 $1.5 Lower, but not equally offset relative to the balanced position

  9. 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 MARK TO MARKET DETERMINATION FOR CDSTRADABLE SETTLEMENT PRICES ENSURE QUALITY 97 98 99 Each clearing member must submit a bid/offer each day for each instrument for which it has an open position On a frequent and unannounced basis, bid/offer submissions are considered tradeable and the algorithm crosses trades when determining a settlement price Settlement Price = 98.95 Citi sells to Goldman JPM sells to UBS

  10. ICE TRUST CDS CLEARINGHOUSEPROGRESS TO DATE Volume is the sum of the notional for each trade and is one sided. For example if A and B agree to clear 1 transaction for $2,000,000 notional and C and D agree to clear 1 transaction for $3,000,000 notional and A and C agree to clear 1 transaction for $8,000,000 notional the volume is $13,000,000 notional. Open Interest is the sum of the net notional for all clearing participants that are net buyers of protection from ICE Trust at the conclusion of the clearing cycle and is also one sided. For example if A is net long $10,000,000, B is net long $15,000,000, C is net short $7,000,000 and D is net short $18,000,000 the open interest is $25,000,000.

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