At least since July 2015, ICE Clear Europe has offered a direct access clearing model to end clients similar to what has been recently proposed by CME Group (i.e., Direct Funding Participant) and recently rolled out by Eurex Clearing (i.e., ISA Direct). Under ICE Clear’s Europe’s offering, known as “Individual Segregation through Sponsored Principal Account,” clients of clearing members may elect to become a direct counterparty of the clearinghouse in connection with their transactions. Under this arrangement, a client, known as the “sponsored principal,” maintains a separate account at ICE Clear Europe, as joint tenant with its clearing member broker, known as the “sponsor,” and is jointly liable with its sponsor for all positions in such account. Although the sponsored principal remains a technical customer of its broker, in the circumstance of its broker’s insolvency, the client’s positions do not need to be ported to another broker. Instead, another broker simply needs to become the sponsor of the sponsored principal. Depending on how the sponsored principal sets up its banking relationships, it may fund and receive margin payments directly to and from ICE Clear Europe, or it may process its payments through its broker. A sponsored principal is not responsible for a guaranty fund contribution or to pay any special assessment to the clearinghouse. Instead, the client’s sponsor is responsible for such amounts attributable to its sponsored principal’s position. The client’s sponsor may perform facilities management and other functions for its sponsored principals. US persons are not eligible, at this time, to become sponsored principals at ICE Clear Europe. (Click here for details regarding CME Group’s DFP proposal in the article, “CME Group Proposes New Clearing Member Category to Help Customers Avoid Pro Rata Distribution Risk in Case of FCM Insolvency” in the July 24, 2016 edition of Bridging the Week and here to access background regarding Eurex Clearing’s ISA Direct program in the article “Before There Was CME Group’s Direct Funding Participant Clearing Membership Proposal There Was Eurex’s ISA Direct” in the August 7, 2016 edition of Bridging the Week.)
My View: It is not clear at this time what the appetite is by clients or clearing members to participate in the innovative sponsored client direct clearing programs of ICE Clear Europe and Eurex Clearing, let alone the proposed program of CME Group. However, all three proposals are interesting ideas designed to help end clients better protect themselves against fellow customer risk at their clearing brokers. Moreover, all three proposals either affirmatively or at least implicitly try to address Basel capital issues of bank clearing members. Time will tell whether end clients pursue these options or whether clearing members offer them. However, as I have said before, they are worth studying. "The times they are a-changin'," to quote Bob Dylan.