IntercontinentalExchange Group Inc. (ICE) announced its intention to consolidate the trading and clearing of its global interest rate derivatives portfolio, post the acquisition of NYSE Euronext Inc. in Nov 2013.
The company has also partnered with the post-trade service provider – The Depository Trust & Clearing Corporation (DTCC), which together with NYSE owns NYSE Liffe’s New York Portfolio Clearing (NYPC) – a clearing house for Treasury futures in the US.
Upon the receipt of regulatory approval, NYPC will be completely terminated and all the existing open positions in futures clearing will be transited to ICE Clear Europe. The whole process is expected to be culminated by the third quarter of 2014.
Additionally, DTCC and ICE are also planning to launch a new cross-margin solution to tap the capital and cost efficiencies across the global interest rate products. NYSE Liffe US has the exclusive right to trade DTCC trademark – GCF Repo Index products, which have been widely acclaimed by traders since its launch in Jul 2012.
The centralization of interest rate derivative clearing is a strategic attempt by ICE to gain efficiencies of scale, thereby helping it reduce the cost of trading and enhance its competitive position in the market.
On the other hand, the execution of high-quality cross-margining is projected to escalate global demand for ICE’s clearing services. This is due to the sooner-than-expected fruition of stringent regulations in Europe that mandate off-exchange trades to be backed by collateral in order to avoid hefty defaults.
Hence, cross-margining helps netting positions of the clients within their asset portfolio within a clearinghouse, which in turn lessens the financial burden of the clients as well. Since its inception in Mar 2011, NYPC helped its patrons save about $40 billion via cross-margining within its fixed income and futures portfolio. These factors further validate ICE’s initiatives to shore up its market presence in Europe through efficient cross-margining and business consolidation.
ICE presently carries a Zacks Rank #2 (Buy). Other better-ranked financial stocks worth considering include Bofl Holdings Inc. (BOFI), Virtus Investment Pvt. Inc. (VRTS) and Hilltop Holdings Inc. (HTH). All these stocks carry a Zacks Rank #1 (Strong Buy).
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