ICE Link Launches C=C for its CDS - Analyst Blog

For the first time in the industry, IntercontinentalExchange Inc. (ICE) launched the Novation Consent=Confirmation (C=C) initiative through its ICE Link platform on Sept 12, in order to smoothen the credit default swap (CDS) processes in the market.

Over the past year, regulators had been seeking such an operation that could make automated OTC derivative transactions more cost-effective and efficient while also providing transparency. Finally, ICE Link's C=C came as the answer for such a system.

The C=C service offers a counterparty the option of closing their position or allocating it to another counterparty, also known as novating the trade. To attain legal confirmation for these processes, counterparties had to face quite a number of predicaments since such processes were generally prone to single or multiple errors in the trade data. 

ICE Link's latest C=C offering will enable different parties to simplify and smoother their CDS processes since now the two-step process of consent and confirmation is now modified to a straight-through-processing (STP) of a novation consent, thereby providing convenience of legality and protection from block novations.

Besides, the STP also avoids double input of details, manual comparisons and reconciliations and allows smooth and easy tracking and auditing by the novation counterparties. This not only boosts efficiency in CDS processing but the enhanced legal confirmation process achieved of this also helps in eliminating unnecessary operational risk and expense.

While the process was launched three weeks before the expected date (Sept 30), it is currently offered by 14 leading CDS market participants to regulators.

While ICE Link is the first one to deliver as per the C=C commitments, it also takes care of meticulous details, thereby avoiding trade errors and speeds up legal confirmation of novations, and at the same time, creates time and cost efficiencies within the industry. This new technological process will also boost ICE's competitive leverage in the industry where big giants such as Nasdaq OMX group Inc. (NADQ) and CME Group Inc. (CME) are actively seeking market share by coming up innovative, high technology processing systems. However, the impact of the limitations on derivative and CDS transactions from the recent consumer protection Act could be a hindrance for the desired success of ICE's C=C initiative.

Overall, since its inception, ICE has been one of the most dynamic companies in the industry and continues to develop and offer a diverse array of products and a broad range of risk management services including trade execution, market data, pre- and post trade processing and clearing services on an integrated platform.

 
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