Progress in CDS Clearing 11 October 2010
Copyright © ICE. All rights reserved. 2 Current Status - Milestones and Volume Cleared ICE Global CDS Cumulative Volume Over $12 Trillion notional cleared globally ICE Trust cleared over $ 3.2 Billion in client-related notional ICE Trust Launches CDS Clearing 3/09 ICE Clear Launches CDS Clearing 7/09 ICE Trust Surpasses $3 Trillion ICE Trust Launches Buy-side Clearing ICE Trust/ICE Clear Launches Single Names 12/09 ICE CDS Clearing Surpasses $10 Trillion Globally In Billions As of September 27 th, 2010
Copyright © ICE. All rights reserved. Current Status - Products and Clearing Members 3 Major Indices North America (CDX)Europe (iTraxx) IG S8 – S15Main S7 – S14 HY S8 – S15XO S9 – S14 HVOL S8 – S15HVOL S7 – S14 Clearing MemberICE Trust ICE Clear Europe Bank of America Barclays BNP Paribas Citibank Credit Suisse Deutsche Bank Goldman Sachs HSBC JPMorgan Merrill Lynch - Morgan Stanley Nomura RBS Societe Generale- UBS Unicredit AG- 190 Single Names SectorNorth AmericaEurope Consumer Services2321 Industrials1511 Consumer Goods1211 Utilities616 Financials714 Basic Materials511 Telecommunications313 Healthcare62 Oil & Gas71 Technology51 As of September 27 th, 2010
Copyright © ICE. All rights reserved. ICE’s solution Provides Transparency to Real Market Prices Clearing Participants provide daily quotes for instruments relevant to their cleared positions Nine points submitted for each Single Name “curve” Uniform Quote Submissions Derivation of Prices Firm-Trade Obligation Controls to Limit Risk Impact Settlement prices generated by crossing/matching process applied to actual quote submissions Strong incentive to quote accurate prices -Bilateral trades required when quotes cross Controls ensure no adverse market impact -Default bid/offer spreads reflect market conditions -Traded notional values reflect typical market sizes -Limits on traded notional per Member -Intelligent sequencing of trades; most liquid first Tenor (Years) Quoted Spread 500bps Coupon 100bps Coupon Key Features of Pricing Solution Illustration of Single Name “Curves” Quoted Spreads for Sempra Energy 4
Copyright © ICE. All rights reserved. Transparency has narrowed the ranges on prices for the more illiquid products 5 Box size indicates dollars of net cleared notional value Changes in Price Dispersion by Cleared Single Name 0-3 month maturity, 100 bps coupon $8.4 B cleared 37% reduction in price dispersion
Copyright © ICE. All rights reserved. Limited pricing information –Availability of quotes / prices only for most liquid instruments –“Indicative runs” versus “Executable runs” –Lack of pricing information for short maturities (0M,6M) –Lack of prices for illiquid / stable entities and sectors Lack of historical time series pricing data –Discontinuous quotes / prices since sensitive to market movements Lack of benchmark comparison of Mark to Market valuations $12-Trillion in Interconnected Risk Increased transparency in CDS prices –Clearing Participants submit quotes / prices for entire term structure of CDS contracts –EOD Settlement prices calculated based on an auction process and disseminated to Participants –Ensures continuous time series and term structure pricing data for cleared entities ICE ensures fidelity of submitted prices by making Clearing Participants trade based on their submissions Valuations can be compared to ICE EOD Settlement prices Reduced to $1-Trillion Transparent, Collaterized Positions Then and Now Pricing Pre ClearingPost Clearing 6
Progress in CDS Clearing 11 October 2010