- l 

I_ lee Atlanta Calgary Chicago Houston London New York Singapore 

David A. Stawick1 Secretary 

Commodity Futures Trading Commission 

1155 21•1 Street/ N.W. 

Washington/ D.C. 20581 

7f'T FEB -6 Pt1 LJ: 13 

OFC. 01·- fnE S£CH£TARIAT 

February 61 2008 

Re: ICE Clear US Section 4(c) Request-72 Fed. Reg. 68862 (December 6, 2007) 

Dear Mr. Stawick: 

ICE Clear U.S.TM/ Inc.("ICE Clear11

) and ICE Futures U.S.TM/ Inc. ("ICE Futures//) submit 

this letter in further support of their respective petitions to the Commission for 

exemptive orders under Section 4(c) of the Commodity Exchange Act/ as amended (the 

"Ad1

) related to the introduction of cleared-only agricultural swaps. 

ICE Clear and ICE Futures are subsidiaries of IntercontinentalExchange®/ a leading 

operator of global exchanges and over-the-counter (OTC) markets. 

IntercontinentalExchange offers futures and OTC markets on a single trading platform 

in a diverse set of products based on crude oil and refined products/ natural gas/ power 

and emissions/ as well as agricultural commodities such as canola/ cocoa/ coffee/ cotton/ 

orange juice/ wood pulp and sugar/ in addition to foreign currency and equity index 

futures and options. It also provides clearing services for its US and Canadian exchanges 

through ICE Clear US and ICE Clear CanadaTM. IntercontinentalExchange was added 

to the Russell lOOQ® Index in June 2006 and the S&P 500 Index in September 2007. 

The relief requested by ICE Clear and ICE Futures to facilitate the dearing of OTC 

transactions in certain non-enumerated/ agricultural commodities is fully set forth in the 

Petitions filed on September 11 and 141 2007 and described in the December 61 2007 

Federal Register notice in which the Commission solicited comments. It was also a topic 

of discussion at the Agricultural Advisory Committee meeting held on the same date. 

Notwithstanding active participation as a presenter that advocated the dearing of OTC 

agricultural swaps at that meetin& and notwithstanding numerous statements in 

support of similar exemptive relief for itself/ the CME Group requested an extension of 

the comment period so that it could "properly consider// the issues in the context of its 

competitors--ICE Clear and ICE Futures. 

Some of the issues about which the CME seeks to inject concern are administrative 

matters that involve the internal procedures of the Commission but have little to do with 

the merits of the ICE Clear and ICE Futures requests. For example/ whether the 

ICE Futures U.S., Inc. 

World Financial Center phone 212 748 4000 

ICE Futures U.S., Inc.. a designated contract market 

under the Commodity Exchange Act, as. amended. 

One North End Ave fax 212 742 6981 

New York, NY 10282 online v.ww.lheice.com 
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Commission prefers to act on individual petitions on a case-by case basis or to is8ue a 

general interpretation or blanket exemption with respect to clearing OTC agricultural 

contracts should be a matter left to the Commission and does not affect the merits of the 

petitions. Moreover, approvals granted to ICE Clear and ICE Futures could be made 

subject to compliance with the terms of any subsequently issued blanket exemption or 

interpretation. 

Other issues raised by the CME in its request for extension of the comment period 

suggest that they have not read the submissions made by ICE Clear or ICE Futures, nor 

their own public filings on the subject. Indeed, many involve matters about which the 

CME has previously (and, in some cases, recently) taken a position that supports the 

requested relief. These include: (I) submissions petitioning the Commission for an order 

pursuant to Section 4d of the Act that would prescribe terms and conditions for the 

commingling of customer funds used to margin OTC currency contracts with other 

funds held in segregated accounts ("CME Submission #05-104"), (II) submissions 

petitioning the Commission for an order pursuant to Section 1a(12)(C) of the Act 

permitting its floor brokers and floor traders to be eligible contract participants so that 

they can enter into OTC transactions cleared by the CME ("CME Submission #05-105"); 

(III) issuance of a document containing "Frequently Asked Questions" (the "FAQ") 

following the Commission's grant of the requested relief, which details procedures for 

clearing OTC transactions and highlighting its benefits; and (IV) a presentation at the 

CFTC Agricultural Advisory Committee meeting on December 6, 2007, which became 

part of the meeting record (the "2007 Presentation"). We highlight some examples 

below. 

0 On the subject of the extent to which a cleared-only OTC agricultural swaps may be 

part of a fungible class of agreements that are standardized as to their material economic 

terms, the CME (citing a Lehman Brothers research report) stated in its own submissions 

that: 

Swaps carry credit risk since they are subject to the default of the 

counterparty ... the main drawbacks to swaps ... is ... non-fungibility ... 

and the absence of a centralized market. When an investor wants to 

unwind his/her position, he/she has to either enter another swap and be 

exposed to two default risks or reach an agreement with the original 

counterparty to close the swap [thus] investing in swaps requires 

significant logistics [and] price transparency may be diminished ... Going 

forward, we can expect the creation of a central dearing house that could 

alleviate these problems. Marking to market swaps will reduce the 

liquidity risk, and creating standardized products will improve the 

liquidity of the market. 

These same conditions exist in the OTC market for our agricultural commodities and 

the same benefits will inure to our marketplace under the ICE Clear proposal. 

2 
0 On the subject of whether cleared-only OTC agricultural swaps are consistent with 

the public interest and the purposes of the Act, the CME pointed to the lack of 

transparency in OTC markets and the benefits that clearing would bring, as follows: 

Flexibility, or the ability to tailor a contract to the risk-management needs 

of the moment, has long been an important benefit associated with OTC 

derivative markets. The deployment of the 'futures-to-the-date' concept 

creates additional flexibility, extending the utility of CME contracts as 

ECPs may more precisely hedge their cash positions with offsetting 

futures positions that match closely in terms of date. 

In its F AQ the CME listed the market benefits of clearing OTC transactions as follows: 

• Central counterparty clearing, which offers greater capital and 

operational efficiencies, including risk offsets against related futures and 

options positions; 

• World-class risk management of the credit, operational, and legal risks 

that customers face in OTC trading; 

• Regulated market protections that institutions have come to expect 

At the 2007 Presentation, it once again highlighted the "Regulatory Benefits of Cleared Ag 

Swaps" in the following way: 

• Bridge unregulated OTC markets with regulated Exchange-traded 

markets 

• Increase transparency through public reporting of volume, open interest 

and settlement prices 

• Valuation and pay/collect for counterparties provided by Clearing House 

• Enhanced market surveillance 

• Backed by capital of Clearing House 

• Enhanced Financial Integrity of transactions as counterparty risk is 

eliminated 

The same benefits would inure to agricultural market participants under the ICE 

Clear proposal, and the public interest and purposes of the Act would be satisfied in 

the same way. 

3 
D On the subject of the conditions under which it may be determined that cleared-only 

OTC agricultural swaps will not have a material adverse effect on the ability of the 

Commission and the relevant registered entities to discharge their regulatory and selfregulatory responsibilities, the CME answered this question by stating, in its 

submissions that it would 

deploy the same systems, procedures, people and processes to clear SUB 

transactions as currently utilized with other transactions cleared by CME. 

ICE Clear intends to use its same systems, procedures, people and processes to clear 

its "cleared only'' futures contracts as currently utilized by it with other transactions it 

clears. 

D On the subject of identifying the necessary requirements with respect to the liquidity 

of the underlying markets or how the risk of a potential default with respect to clearedonly OTC agricultural swaps should otherwise be mitigated, the CME addressed the 

question of liquidity requirements for "to-the-date" contracts and the default risk in its 

own submissions, as follows: 

CME intends to apply standard margining levels to cleared only futures despite 

the likelihood that liquidity in these contracts may be diminished relative to 

traded and cleared futures. 

It went on to note that risk could be laid off either in the relevant OTC market or 

in its own regularly listed currency and interest rate contracts. CME does not 

anticipate any particular operational problems associated with such riskmanagement activity to the extent that any such activity in the context of [cleared 

only] futures ... is completely analogous to risk management activities 

associated with standard IMM-dated contracts, for which the CME Clearing 

House is well prepared. Accordingly, these dynamically-listed futures ... shall 

be subject to normal CME margin requirements and to applicable CME Rules 

and CFTC Regulations. 

ICE Oear will also apply standard margining levels and have recourse to the OTC 

markets, as well as the ICE Futures listed contracts to which the cleared-only swaps 

correlate. 

4 
D On the subject of the conditions under which funds used to margin cleared-only OTC 

agricultural swaps should be permitted to be commingled with funds held in 

segregation, the CME petitioned the Commission for an order pursuant to Section 4d of 

the Act that prescribed terms and conditions for the commingling of funds used to 

margin OTC currency contracts with other funds held in segregated accounts. It then 

touted the advantage of the bankruptcy laws by stating as follows: 

Moreover, customer collateral deposited with CME for cleared futures is 

segregated and protected from a bankruptcy in the carrying clearing 

member's proprietary origin. 

In its 2007 Presentation, the ability to commingle such funds was again emphasized as 

one of the benefits of clearing OTC agricultural swap transactions, in a segment titled 11 Market Benefits of Cleared Ag Basis Swaps With Margins Held in Customer Segregated 

Account, as follows: 

• Enhanced risk management for agricultural commodities 

• Manage basis risk in addition to flat price risk 

• Increased transportation costs and higher flat price levels = greater basis 

risk 

• Improved capital efficiency through daily mark to market margin process 

• Allow small and mid-size commercial firms to better compete 

• Provides benefits of centralized clearing for products that are too small to 

support efficient exchange-traded futures 

The 4(d) request made by ICE Clear parallels the terms of the Orders previously 

issued by the Commission to the CME and other exchanges concerning the 

commingling of funds, and the same benefits would inure to ICE Clear market users. 

The CME continues with this theme by reminding the Commission not to overlook the 

question of whether a 4(d) Order permitting the funds used to margin cleared-only OTC 

contracts to be held in segregation would subject those funds to the bankruptcy 

protections set forth in Part 190 of the Commission's regulations- a matter which the 

Commission has addressed numerous times in the context of every Section 4( d) order 

issued by it. 

D On the subject of ICE Futures floor brokers and floor traders being eligible swaps 

participants for purposes of the subject transactions, the CME, in its submission to have 

its floor brokers and floor traders be eligible contract participants entitled to enter into 

cleared OTC transactions, stated that: 

Inclusion of floor traders and floor brokers is intended to serve the public interest 

generally by enhancing liquidity and opportunity. CME floor brokers and floor 

5 
traders who utilize the SUB process to create positions in either 'traded and 

cleared' or 'cleared-only' Exchange markets will be leveraging their trading 

skills, experience and market expertise in such a manner as to attract additional 

activity and open interest onto the Exchange. In the process, they will likewise be 

expanding the pool of potential counterparti.es for OTC market participants and 

generally facilitating liquidity in the OTC marketplace as well. Accordingly, this 

strengthens the ties between, and enhances the utility of both, the exchangetraded and OTC derivatives marketplaces. 

The same holds true with respect to ICE Futures floor brokers and traders transacting 

in the eligible OTC contracts that will be cleared by ICE Clear. 

Although the CFMA did not specifically provide for clearing of swaps involving 

agricultural products, the Commission has broad exemptive authority under Section 4(c) 

of the Act to grant the relief requested. We believe that doing so is appropriate in the 

circumstances presented. 

Section 4(c)(l) of the Act empowers the CFTC to "promote responsible economic or 

financial innovation and fair competition" by exempting any transaction or class of 

transactions from any of the provisions of the Act (subject to exceptions not relevant 

here) where the Commission determines that the exemption would be consistent with 

the public interest. In enacting Section 4(c), Congress noted that the goal of the provision 

"is to give the Commission a means of providing certainty and stability to existing and 

emerging markets so that financial innovation and market development can proceed in 

an effective and competitive manner". The Commission should recognize the growth 

and maturity of the agricultural markets involved in the ICE Oear and ICE Futures 

proposal. Coffee, sugar and cocoa are international commodities that are produced 

outside of the U.S. and listed for trading on markets throughout the world. The ability of 

the US markets to compete with respect to these products would be enhanced by 

granting the requested petitions. 

Section 4(c)(2) provides that the Commission may grant exemptions only when it 

determines that the requirements for which an exemption is being provided should not 

apply to the agreements, contracts or transactions at issue, and the exemption is 

consistent with the public interest and the purpose of the Act; that the agreements, 

contracts or transactions will be entered into solely between appropriate persons; and 

that the exemption will not have a material adverse effect on the ability of the 

Commission or any contract market to discharge its regulatory or self-regulatory 

responsibilities under the Act. Issuance of the Orders sought hereunder will be in the 

public interest by promoting liquidity and transparency in the markets for OTC 

6 
derivatives on agricultural commodities as well as futures on such commodities. 

Moreover, they will be entered into solely between appropriate persons because the 

transactions would be limited to being conducted among eligible swaps participants-a 

class of trader that has aiready been recognized by the Commission to be "appropriate 

persons" for these types of transactions in other contexts. There is no reason to believe 

that allowing the clearance of swaps in agricultural commodities would have a material, 

adverse affect on the ability of ICE Clear or the Commission to carry out their selfregulatory and oversight responsibilities, respectively. 

In closing, we believe that all of the conditions for the exercise of the Commission's 

exemptive authority under Section 4(c) are met by the proposal, and it would be 

appropriate for the Commission to exercise that authority to grant the requests. 

Respectfully Submitted, 

President 

ICE Clear U.S., Inc. 

Cc: Acting Chairman Lukken 

Commissioner Chilton 

Commissioner Dunn 

Commissioner Sommers 

Ananda Radhakrishnan 

Richard Shilts 

David VanWagner 

7 

Thomas Farley 

President & COO 

ICE Futures U.S., In .