Shearman & Sterling is advising IntercontinentalExchange, a leading operator of global over-the-counter (OTC) markets, clearing houses and regulated futures exchanges, on its launch of a new clearing facility for OTC Non-Deliverable Forward Foreign Exchange (FX) contracts. The firm has previously advised ICE on the establishment of ICE Clear Europe and ICE Clear Credit, including the development of credit default swaps (CDS) clearing, as well as on several significant acquisitions and other transactions. ICE now lists over 300 unique CDS contracts for clearing and to date has cleared over $28 trillion in gross notional for U.S. and European index and single name CDS. ICE also provides clearing services for its futures and OTC markets, including the central clearing of more than 1.5 million futures and OTC Energy contracts per day.
ICE’s new FX clearing proposition will include facilities for both client and clearing member trades and is planned to commence operations in the second quarter of 2012, subject to regulatory approvals. The contracts initially cleared will be non-deliverable forward FX contracts referencing Brazilian Real, Korean Won, Chinese Yuan, Indian Rupee, Indonesian Rupiah, Chilean Peso and Russian Ruble. All of these contracts will be settled in U.S. Dollars. ICE also plans to clear additional FX products in the future in accordance with regulatory developments and market demand.
ICE’s OTC FX clearing service was developed in close coordination with leading global FX market participants, including dealers, buy-side market participants, prospective Swaps Execution Facilities, FX trading platforms, and affirmation, connectivity and matching providers in order to provide a tailored FX clearing solution with full straight-through processing support for all market participants.
“Shearman & Sterling’s involvement in the project was pivotal,” said Thomas Farley, President of ICE Futures U.S. “With their transatlantic expertise in clearing, financial regulatory, M&A and tax, we were able to use the firm for all aspects of the transaction, from creation of the new rulebook for clearing OTC FX to documenting the agreements with the founding clearing members.”
ICE’s OTC FX clearing service is designed to meet U.S. regulatory requirements, as defined in the Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd Frank) and the European Market Infrastructure Regulation (EMIR), which both are likely to mandate the clearing of certain OTC FX contracts. The launch of ICE’s OTC FX clearing service is subject to receipt of applicable regulatory approvals.
The Shearman & Sterling team included partners Barney Reynolds (London-Financial Institutions Advisory & Financial Regulatory), David Connolly (New York-Mergers & Acquisitions) and Thomas Donegan (London-Financial Institutions Advisory & Financial Regulatory), as well as partners Patrick Clancy (London-Derivatives & Structured Products), Geoffrey Goldman (New York-Derivatives & Structured Products), Iain Scoon (London-Tax), and Michael Shulman (Washington, DC-Tax); counsel Simon Letherman (London-Tax); and associates Aatif Ahmad (London-Financial Institutions Advisory & Financial Regulatory), Kevin Boon (New York-Mergers & Acquisitions), Mak Judge (London-Financial Institutions Advisory & Financial Regulatory) and Jeffrey Tate (Washington, DC-Tax).
