ICE clearinghouse for CDS hung up on costs for lightly traded contracts

[RB TexLa]

By Matthew Leising

Feb. 10 (Bloomberg) -- Intercontinental Exchange Inc.’s planned clearinghouse for the $28 trillion credit-default swap market is stalled over pricing on less frequently traded contracts, Chief Executive Officer Jeff Sprecher said.

U.S. regulators and industry representatives are working with Intercontinental to create a system to determine prices for credit-default swaps that differ from the standard five-year contract, Sprecher said today on a conference call with analysts. Federal officials had hoped the clearing plans would be approved by the end of 2008, they said last year.

“There’s an interactive discussion” going on about how to price contracts that don’t trade often, Sprecher said. “That’s why the clearinghouse has not been approved. We’re working with the market on this.” Chief Financial Officer Scott Hill said regulatory approval may come “in the very near term.”

U.S. regulators and other government officials are pushing the creation of a clearinghouse for credit-default swaps after Lehman Brothers Inc., one of the largest dealers in the market, filed for bankruptcy in September. A clearinghouse reduces the risk that a counterparty such as Lehman will default on a trade and also creates prices for the contracts that are now privately traded in the bi-lateral over-the-counter market.


http://www.bloomberg.com/apps/news?pid=20601087&sid=ajj6I1iqF1UQ&refer=home

[aquart]

1. How about zero?

[Idealism]

2. And no one could foresee an impasse on prices for worthless assets...

[RB TexLa]

3. The impasse is because of the trade volume on CDS that vary from the normal contract parameters.

[Idealism]

4. What does one expect on unregulated instruments?

[RB TexLa]

5. Most are in the normal structure, but a true clearinghouse for CDS has to cover all

and the pricing on those that aren't traded like most is a bit problematic. I think the major concern is large swings in lightly traded contracts. They will come up with something, perhaps trade halts. I don't think they want instant margin calls on them.

[Idealism]

6. Such a small portion of the contracts shouldn't hold up the majority

Trade halts or an established market price by regulators is the only two ways to go and still include these rarer instruments into the clearinghouse, me thinks.