30 August 2001

To:    Steve Kean, Enron

Request: Is ICE regulated by the CFTC?
Response: The Intercontinental Exchange (ICE) is regulated by the Commodity Futures Trading Commission only to the extent the markets are made on the exchange for products that have already been designated futures contracts by the commission. 
 
ICE announced 28 August that its new clearing house, the formerly the London Clearing House of the International Petroleum Exchange, would clear cash-settled U.S. oil swaps for West Texas Intermediate crude and U.S. natural gas swaps at the Henry Hub. Since both of these underlying products trade as futures contracts in the U.S., the derivative product traded on ICE is regulated as well. The fact that the futures trade on another exchange, the New York Mercantile Exchange, is immaterial.
 
The ICE said its London Clearing House has applied to the CFTC for recognition as a Derivatives Clearing Organization (DCO). Section 5b(d) of the Commodities Exchange, Act, as added by the Commodity Futures Modernization Act of 2000 (CFMA),  provides that DCOs shall be deemed to be registered under this section to the extent that the DCO clears agreements, contracts, or transactions for a board of trade that has been designated by the Commission as a contract market for such agreements, contracts, or transactions before the date of enactment of this section. This provision captures all futures clearing organizations that have ever cleared any futures contracts for designated contract markets before the CFMA became effective.
 
DCOs of both traditional open outcry exchanges, as well as electronic-only exchanges, have been approved by the CFTC. Applications by the Intercontinental Exchange and Hedge Street, Inc., appear to be pending.  A CFTC official told Intellibridge that few applications to create DCOs have been submitted since the CFMA was signed.
 
Sources:
CFTC, <http://www.cftc.gov/dea/dearegistered_dco.htm>
ICE, <https://www.intcx.com/pressaug01c.html>
 
For more information on depletion rates, or to speak with an industry expert, contact Intellibridge Sr. VP Kelley Kenyan at (202) 298-6300 x.256 or kkenyan@Intellibridge.com.