Thursday, October 30, 2008

ICE to buy Clearing Corp.

By: Ann Saphir Oct. 30, 2008

(Crain’s) — IntercontinentalExchange Inc., CME Group Inc.’s biggest rival in the U.S. futures business, will acquire Clearing Corp. as part of its race to be the first to tap the $55-trillion market for credit default swaps.

Terms of the deal were not disclosed.

ICE and the investment banks and bond brokers that own Clearing Corp. will form a New York trust bank that will be regulated by the New York Federal Reserve, and the project “is undergoing final testing in preparation for launch,” the companies said in a statement Thursday.

CME is also developing its own clearinghouse for the contracts, in conjunction with Citadel Investment Group LLC.

See related story: "CME, Citadel to create new exchange"

Atlanta-based ICE’s acquisition brings to end more than 80 years of history for Clearing Corp., which, under the name Board of Trade Clearing Corp., guaranteed transactions at the Chicago Board of Trade until 2004. That’s when the CBOT took its clearing business to the CME; it was a reaction to Board of Trade Clearing Corp.’s decision to also do business with a startup that was challenging CBOT’s franchise in Treasury futures. Board of Trade Clearing Corp. changed its name soon after.

A group of Wall Street banks and global bond brokers recapitalized Clearing Corp. in December and said it would start clearing credit default swaps, which are handled in unregulated over-the-counter markets and have been linked to the credit crisis that began last summer.

Efforts to set up the business moved slowly. After the collapse of global credit markets in September, the New York Fed pressured Clearing Corp. to step up its timeline or make way for other players. Earlier this week, Clearing Corp. forged the alliance with ICE, and Thursday it agreed to be taken over by ICE.

This isn’t the first time ICE and CME have clashed. In 2007, ICE bid to take over the Chicago Board of Trade, which had already agreed to be bought by CME. Ultimately, ICE’s involvement forced CME to pay 50% more than its original offer to seal the CBOT deal.



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