The InterContinental Exchange agreed to be regulated after the US Commodity Futures Trading Commission effectively ruled that one of ICE’s natural gas contracts should no longer be exempt.
The ruling came July 24 when the CFTC, using new authority to apply regulatory and reporting requirements to exempt commercial markets with significant price discovery functions, ruled that ICE’s Henry Financial LD1 Fixed Price Contract fit that description.
ICE declared itself a registered CFTC entity on July 27 and announced that it would begin submitting enhanced market statistics for its cash-settled Henry Hub gas swap market to the commission immediately. It said that clearing firms will begin providing large insider trading data to the CFTC, that ICE’s data will be incorporated in the commission’s weekly Commitment of Traders Report, and that the Henry Hub swap will be subject to position limits and accountability levels.
The CFTC announced on June 9 that it would review the contract to determine whether it performed a significant price discovery function and should no longer be exempt, exercising authority for the first time which it received when the 2008 farm bill became law.
It based its July 24 decision on further analysis of the contract and its characteristics, including its high average daily trading volume, its reliance on the New York Mercantile Exchange’s physically-delivered gas futures contract, and trader usage of the ICE contract’s prices.
With clear indications that the ICE contract satisfied these three conditions, the commission did not analyze possible material price reference and consequently reached no conclusion on this fourth qualifying condition, the CFTC said.
ICE noted that it has worked with the CFTC since October 2006 in developing regular over-the-counter market reporting, including large trader information.
“We appreciate the CFTC’s use of its broad powers in the OTC markets to provide regulatory certainty and to underscore the integrity of these important contracts,” said Jeffrey C. Sprecher, the exchange’s chairman and chief executive. “As the most transparent and standardized OTC energy marketplace, ICE demonstrated leadership in bringing visibility into these global markets, and we have worked proactively to ensure that the CFTC has the information it needs to effectively monitor our markets.”
ICE’s announcement came one day before the CFTC planned to begin hearings on position limits and exemptions in energy markets. The commission will hold the hearings July 28, July 29 and Aug. 5 at its Washington headquarters.
Contact Nick Snow at[email protected]
