01/13/11 - The Wall Street Journal - By Jamie Cawley

ICE Trust Was Properly Put on Hold

Regarding your editorial "Derivatives Rules on ICE" (Jan. 7): ICE Trust's proposed risk structure was unsound. ICE's application failed to properly disperse its risk over several, diversified and noncorrelated clearing members. It is exactly this attribute—having several, even hundreds of clearing firms sharing the risk—that has served clearinghouses well since the mid-19th century.

ICE's limited membership of 14 was too few in number and too high in correlation. It was barely two years ago, in 2008, that similar institutions either failed or sought a massive bailout from taxpayers. ICE should heed the Commodity Futures Trading Commission and the market's request to admit a higher number of qualified clearing members whose presence would only diversify and lessen such systemic risk to our financial system.

ICE's application also sought to restrict the trading of derivatives, thereby increasing the product's systemic risk and cost to the U.S. taxpayer. Customers were prohibited from trading with other dealers and could not trade with each other. In times of crisis, the market, ICE included, can never have enough transparency or liquidity. ICE should seek to encourage all avenues of liquidity, not restrict them.

James Cawley
Swaps & Derivatives Market Association
New York