London Clearing House (LCH) announced today that from September 12 it will be providing clearing services to the IntercontinentalExchange(ICE), a web-based electronic marketplace founded in March 2000 by leading U.S. and European financial institutions and energy and natural resource firms to trade listed commodity and derivative contract types around the world, including crude oil and refined products, natural gas, power, precious metals, weather derivatives, emissions allowances and coal.
ICE launched bilateral trading in December last year and has been capturing a growing market share ever since. Today more than 25 firms trade regularly, with daily OTC volumes averaging 75 trades per day in Q2 2002. On 26 July a new record daily volume was set, with over 270 million terms traded.
As part of their European Clearing programme, ICE and LCH will launch clearing for German and UK Power contracts
later this year. Bilateral trading on these contracts was launched on ICE in May, and the appetite for a clearing service for these markets has been growing ever since.
Uday Narang, Managing Director at Entergy-Koch Trading Europe Ltd said: “EKT has always been a supporter of clearing for OTC contracts as we believe that clearing is good for the industry generally, but will also help to solve credit issues in the short term and increase liquidity in the longer term. EKT fully supports ICE with their clearing services and we believe that it will facilitate the development of the European Energy Markets.”
By providing OTC Clearing to ICE participants, traders will reduce their reliance on bilateral credit lines, as LCH becomes the central counterparty to all trades, allowing increased trading opportunities and more efficient use of capital.
Furthermore, additional benefits will be gained through cross margining between the ICE OTC NBP contract and the International Petroleum Exchange’s NBP Futures contract, which also clears through the LCH, and through the efficiencies of straight through processing.
OTC Clearing is offered as an optional service in the same price stream as bilateral trading on the ICE screen. It presents increased opportunities for traders as credit intermediation by their clearing firm makes it possible for the trader to see more “white” (tradeable) prices on the screen. Traders will now have the ability to designate whether they prefer to conduct bilateral (OTC) transactions with specific counterparties or trade on a cleared basis.
As well as offering clearing for trades executed on the ICE trading platform, ICE and LCH will extend their clearing service to cover OTC trades executed away from the platform, generally for reasons of size. These block trades may be posted as months, quarters, seasons, calendars and spreads – from nearby expiration out as far as 60 months.
“The launch of clearing services for European Gas and Power markets confirms our commitment to bringing further liquidity, transparency and efficiency to European energy markets,” said Jeff Sprecher, CEO of IntercontinentalExchange. “We look at this launch as a further step in our overall development of global OTC Clearing services, which have already proved to be very popular in North American markets.”
Richard Heyman – Director, LCH EnClear, said: “LCH is delighted to participate in this further expansion of the cleared market in globally traded OTC energy products. The commencement of clearing in the European marketplace represents a significant step forward in the provision of value through our members to the market as a whole.”
IntercontinentalExchange’s OTC Clearing Firms include:
ABN Amro
ADM Investor services
BNP Paribas
Banc One
Banc of America Futures
Barclays Bank
Cargill Investor services
Carr Futures
Fimat
GNI
Goldman Sachs
Man Financial
Morgan Stanley
Prudential Bache
Refco
Salomon Smith Barney
Shell