Intercontinental to Clear Credit Swaps Next Week

March 6 (Bloomberg) -- The U.S. Securities and Exchange Commission granted an exemption for Intercontinental Exchange Inc. to begin guaranteeing credit-default swaps. The company said it would begin clearing next week.

U.S. and European regulators are developing separate plans to stabilize the derivatives market after American International Group Inc., once the world’s largest insurer, almost went bankrupt last year from its use of credit-default swaps.

Clearing Corp. shareholders including JPMorgan Chase & Co., Goldman Sachs Group Inc. and UBS AG, received $39 million in cash from Intercontinental in the acquisition, as well as the Clearing Corp.’s cash on hand and a 50-50 profit-sharing agreement with Intercontinental on the revenue generated from processing the swaps.

Members of the Intercontinental clearinghouse will have to have a net worth of at least $5 billion and a credit rating of A or better to clear their credit-default swap trades.

A clearinghouse acts as the buyer to every seller and seller to every buyer, reducing the risk of a counterparty defaulting on a transaction. In the over-the-counter market, where credit- default swaps are currently traded, participants are exposed to each other in case of a default. A clearinghouse also provides one location for regulators to view traders’ positions and prices.

Credit-swaps dealers have been working to revamp the terms and trading standards on which credit swaps trade in order to make them interchangeable, a necessity for clearinghouses.

Those changes, which primarily impact contracts on individual companies rather than the indexes, include making permanent the ability of investors who buy the guarantees to settle the contracts in cash, rather than physically delivering the bonds or loans insured.

The International Swaps and Derivatives Association said this week it will publish rules for that process on March 12.