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a CCP enables market participants to accept the best bids and offers without concern that a counterparty may default.

By assuming counterparty credit risk and enforcing participation standards and margin requirements, CCPs also can help diminish systemic risk in market settlement activities. In addition, establishment of a CCP can lower systemic risk by instituting procedures for the orderly close out of the positions of any participant who defaults and by mutualizing the cost of the close-out process. Proposed Activities

ICE Trust would act as the CCP for its participating financial institutions by novating CDS contracts between participants. Through novation, ICE Trust would be positioned between the parties to a CDS contract, thereby becoming the counterparty to each party. ICE Trust would net out the overall positions of each participant and, accordingly, would receive payments from and make payments to each participant on a net basis. In this manner, ICE Trust would reduce the volume of settlement payments among participants and reduce the counterparty, credit, and other risks and the transaction costs associated with CDS contracts.

Initially, ICE Trust proposes to clear only contracts that are based on certain CDX North American indices and are submitted by the participants as principals.10 [Footnote 10. These indices include certain investment-grade indices; investment-grade, high-volatility sub-indices; and high-yield indices. End footnote 10.] Incidental to clearing such transactions, ICE Trust also would provide certain transaction-related administrative services to participants. ICE Trust proposes to charge a fee for its CDS clearing services to participants primarily on a per-transaction basis.

As a member of the Federal Reserve System, ICE Trust would be eligible to open an account with, and receive payment services from, the Federal Reserve Bank of New York. ICE Trust proposes to obtain a number of services from TCC and ICE. ICE Trust would use TCC’s existing infrastructure for clearing operations and its risk-management services. ICE would provide internal audit functions for ICE Trust.

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