Last week ICE announced that it is registering its products as Futures.

ICE has always traded “look alike” swaps that acted and behaved just like futures. As look-alike contracts, ICE was able to stay out of the Commodity Exchange Act and the CFTC. Dodd Frank changed all of that. So ICE seems to have adopted a “join ‘em” attitude and decided to go head to head with CME.

It’s worth pointing out that there is still a HUGE incentive to trade bilaterally OTC. If you are Exxon, the amount of collateral you have to put up for an OTC trade is minimal if not zero.  So why would you clear and post margin? Uncleared OTC is going to remain alive and kicking. Sure, some trades will be mandated for clearing. But for now those contracts are few and as new products come into scope they will be battled over furiously.

In this sense, ICE really has an edge.  ICE has a great OTC platform that will stay live; an SDR that appears functional; and, a wide futures product mix. CME may tout Clearport as the ultimate OTC clearing destination, but as many know, it’s just far, far harder to use than clearing on ICE. I was talking to a broker who told me that ICE calls him every week to make sure everything is running smooth as silk. CME? No comment.

While I am pretty bullish on ICE with this move, it is not without some anticipated growing pains. I think the worst pain is going to be in their pricing and margin groups.  Pricing was a revenue center for ICE. So if you are anyone but a high volume trader, getting prices and margin cooperation has historically been a bit like a trip to the dentist (you pay for pain). I think this is changing. After all, its a federal requirement that futures settlement prices get published daily.

But these are trivialities. For those trading on ICE, there is really not much impact. Had ICE stayed with look-alikes, they would have had to send all these trades to Trade Vault as a DCO anyway.