Thursday, May 20, 2010

Escape derivatives reform - via ICE and the Cayman Islands

The American Interest is carrying an important article by the investigative journalist Lucy Komisar, a good friend of TJN and a former co-chair of TJN-USA, which starts:

"The U.S. Senate is debating a major financial reform bill in which the credit default swap, a kind of derivative, plays a significant part. An amendment to that bill, proposed by Senators Carl Levin (D-MI) and Jeff Merkley (D-OR), would ban banks from proprietary trading. There are a lot of high-rolling bankers who do not want that amendment to pass, because it will mess up their plans to repatriate foreign profits into the United States, untaxed, by trading in derivatives on their own accounts. The clearinghouse ICE Trust U.S. forms a central part of these plans."

What is ICE Trust U.S., and who owns it? ICE Trust U.S. was created in anticipation of tougher U.S. laws that will force the trading of derivatives into clearinghouses, in which prices are made public and the losses of one member are shared with others. As Komisar explains:

"ICE US Holding Co., which was established in 2008 as the parent of ICE Trust U.S., is located in the Cayman Islands. Yet none of the owners of ICE US Holding Co. are based in the Caymans. International Exchange, Inc., which owns 50 percent of ICE US Holding, is headquartered in Atlanta, Georgia. Among the other owners of the Caymans company are Citigroup, Goldman Sachs, JPMorgan Chase, Merrill Lynch and Morgan Stanley, which are headquartered in New York. Bank of America, which now owns Merrill Lynch, is based in Charlotte, North Carolina. Deutsche Bank (Frankfurt), and UBS and Credit Suisse (Zurich) are also part owners."


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