August 4, 2010 / 5:18 PM / 9 years ago

UPDATE 1-ICE to register as swaps trading platform, CEO says

* CFTC rules on SEFs likely to be contentious- Sprecher

* ICE decision to become a SEF contrasts with CME’s tack (Adds comments from CEO, background)

By Jonathan Spicer and Ann Saphir

NEW YORK/CHICAGO, Aug 4 (Reuters) -IntercontinentalExchange Inc (ICE.N) will apply to trade swaps under new rules governing Wall Street, CEO Jeffrey Sprecher said on Wednesday, putting the exchange operator into competition with some of its biggest clients.

Sweeping U.S. financial reform signed into law last month will require over-the-counter swaps to be cleared and traded on a new type of regulated platform called a swap execution facility. Trading of swaps today is conducted by dealers and brokers who use private networks to find market participants willing to take the other side of a customer’s swap.

But the law is unclear on whether such networks will be considered SEFs, or if the new platforms will need to look more like the kinds of futures exchanges that ICE already runs.

The decision will rest with the U.S. Commodity Futures Trading Commission, which won oversight of much of the over-the-counter market under the new law and must issue a raft of new rules to implement its authority over swaps.

“Where trading ultimately resides, and how it moves, is going to be highly determined by what the CFTC concludes that a SEF is,” Sprecher told analysts on a call following ICE’s second-quarter earnings report. “I expect that when the rule making comes out, the responses are going to be like being hit by a fire hose.”

ICE’s decision to apply as an SEF could put it at odds with swaps dealers who are also ICE’s biggest customers for its futures business.

Dealers are likely to seek permission to turn their private swaps networks into SEFs so that they can continue to offer swaps trading, CME Group Inc (CME.O) CEO Craig Donohue told investors last week.

CME, which faced dealer resistance when it tried to launch a credit default swaps trading facility last year, has for its part decided against pursuing an SEF license that could put it into competition with powerful swaps dealers.

The futures giant will instead concentrate on providing clearing services to SEFs, Donohue told investors last week. (Reporting by Jonathan Spicer in New York and Ann Saphir in Chicago; Editing by Tim Dobbyn)

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