September 4, 2012 / 2:11 PM / 7 years ago

UPDATE 2-ICE's swaps switch moved up to October from January

* ICE to convert all OTC energy swaps and options to futures

* Says bumped up date due to strong customer demand

By John McCrank

NEW YORK, Sept 4 (Reuters) - IntercontinentalExchange Inc said on Tuesday it will now switch its cleared over-the-counter energy swaps and options to futures on Oct. 15, rather than in January, a move that could save its clients a lot of time and money.

A host of new rules to boost oversight and limit risk in the opaque $650 trillion swaps market are expected to begin to take effect in October.

ICE first said in July it would transition its cleared OTC swaps for crude, refined products, natural gas, electric power and natural gas liquids to exchange-traded futures, which do not carry the same burdensome reporting requirements as similarly cleared OTC swaps under the 2010 Dodd-Frank Act.

“They are trying to basically match up the launch date with the effective date of the rules and thereby reduce the transitional costs on their customers,” University of Houston finance professor Craig Pirrong, who is a futures market expert, said of ICE’s announcement.

ICE said in a statement that it moved the transition forward after consulting with customers on how it could best support their daily hedging and risk management requirements. A spokeswoman for ICE would not comment further.

Large traders have said the move would be beneficial as they look to reduce their exposure to the new rules imposed on the swap market by the Commodity Futures Trading Commission (CFTC).

“The compliance costs associated with all of the new rules and regulations are a huge component of what firms are thinking about, so I’m sure that influenced decisions across the board,” said Andy Nybo, head of derivatives at research firm TABB Group.


The transition of ICE’s cleared OTC swaps to exchange-traded futures should boost transparency and bring the products into a clearer regulatory framework, with little change for ICE’s customers.

The OTC derivatives market came under increased regulatory scrutiny in the wake of the financial crisis when risky derivatives trading at firms such as insurer American International Group Inc and investment bank Lehman Brothers nearly toppled the financial system.

The inability to assess the scale of the market, the identity of contracting parties, or the nature of non-standard contracts, frustrated regulators.

In July, the CFTC finalized a timeline laying out when different types of firms will have to route trades through clearinghouses, as required by Dodd-Frank. The swaps regulator also approved a definition of swaps that takes effect on Oct. 12 and starts the clock ticking on other market reforms.

But there is still a lot of uncertainty among swaps market participants as to how exactly they will be affected, said Mike Corley, president of Mercatus Energy Advisors, a Houston-based consultancy that advises companies on fuel hedging.

“A week doesn’t go by where I talk to at least one attorney and one auditor about everyone trying to figure out what the ultimate impact is going to be,” he said.


ICE said the switch from swaps to futures is expected to be seamless and that customers will see no change in execution and clearing fees, minimum commission and view-only fees, and margin methodology and rates. Clearing will remain at ICE Clear Europe.

The products will continue to be listed and traded on the Atlanta-based exchange operator’s platform and cleared at ICE Europe. ICE said cleared North American natural gas, electric power and environmental products will be listed as futures on the ICE Futures U.S. energy division.

Cleared oil products, freight, iron ore and natural gas liquid swaps will be listed as futures on ICE Futures Europe.

The move also further pits ICE against CME Group Inc , owner and operator of the New York Mercantile Exchange (NYMEX), which already offers a clearing mechanism to replace swaps with futures.

All uncleared swaps will continue to be listed on ICE’s OTC platform, which will register as a swap execution facility (SEF) when the SEF rules are finalized.

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