The Federal Reserve approved Atlanta securities-market operator IntercontinentalExchange Inc.’s application to clear credit-default swaps. ICE, as the company is known, must still obtain approval from the Securities and Exchange Commission.
The company hired Shearman & Sterling bank regulatory partner Brad Sabel in New York for advice on the applications, according to ICE’s general counsel, Johnathan Short. Sabel is a former staff attorney with the Federal Reserve Bank of New York.
Credit-default swaps are derivatives used to hedge against losses or to speculate on the ability of companies to repay their debt, according to Bloomberg News. The contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to adhere to its debt agreements.
Federal regulators have made a priority of moving the multitrillion-dollar market for credit-default swaps into exchange clearinghouses like ICE, according to the Chicago Tribune.
American International Group Inc., once the world’s largest insurer, almost went bankrupt last year from its use of credit-default swaps, Bloomberg reported.