As policy within banks evolve, JP Morgan puts an end to CLS settlement via ICE Clear

 

IntercontinentalExchange (NYSE:ICE)’s ICE Clear US (ICUS) division has been the subject of provider JP Morgan’s instruction to discontinue its third party settlement service to CLS as banks move away from providing CLS services to non-bank financial market infrastructures.

In a report today by FXWeek, it was stated that the changes took place on June 16 this year, subsequent to a notification to the US Commodity Futures Trading Commission (CFTC) in March. This is not the first time that a large exchange and clearing house has been given its cards with regard to providing settlement services to banks, with CME having been subject to the same curtailing of service by Citi and JP Morgan just shortly beforehand.

The CFTC filing does not name the provider, however FXWeek has reported that industry figures have identified JP Morgan as the third party agent to CLS.

According to information submitted to the CFTC by Heidi Rauh, General Counsel and Chief Compliance Officer at ICUS, “CLS Bank does not permit CCPs to hold direct membership in CLS Bank under its current bylaws and membership requirements. Accordingly, ICUS and ICE Futures US (IFUS) are revising the current procedures for facilitating delivery of physical foreign currency to accommodate the preceding circumstances.”

“Under the new procedures, ICUS will run an allocation to establish ‘matched pairs’ of clearing members with delivery positions (as it currently does for other IFUS contracts), and the clearing members will be required to make and take physical delivery of currency directly with each other through CLS Bank, either as direct CLS members or through CLS member banks under the third-party model” continued Ms Rauh’s filing.

“Banks are getting better at identifying risk, and deciding what makes sense as a business and what doesn’t. The Lehman Brothers incident might have taught them that being a third-party settlement provider might be a big risk that they’re not accurately identifying” concluded a source to FXWeek.

On a wider corporate subject for ICE’s main entity, the firm’s stock had its overweight rating reinstated by analysts at the very same bank which curtailed the settlement service, JPMorgan Chase & Co, as part of a research report which the global financial giant issued to clients and investors on Friday. The analysts currently have a $223.00 price objective on the stock, which represents a decrement their previous price objective of $230.00. JPMorgan Chase & Co.’s price objective indicates toward a potential upside of 16.54% from the stock’s previous close.

ICE has recently gained the attention of many other professional services consultancies, one of which is Keefe, Bruyette & Woods, whose analysts reiterated an “outperform” rating on shares of ICE in a research note on Friday. They now have a $223.00 price target on the stock, down previously from $232.00. Separately, analysts at Zacks reiterated an “underperform” rating on shares of IntercontinentalExchange in a research note on Friday. They now have a $171.00 price target on the stock.

Finally, analysts at Zacks downgraded shares of IntercontinentalExchange from a “neutral” rating to an “underperform” rating in a research note on Friday, July 18th. They now have a $174.00 price target on the stock. One analyst has rated the stock with a sell rating, two have assigned a hold rating and eleven have issued a buy rating to the company’s stock. IntercontinentalExchange currently has an average rating of “Buy” and a consensus target price of $216.58.

ICE stock traded up 1.59% during mid-day trading on Friday last week, hitting $191.35. 1,026,175 shares of the company’s stock traded hands. The company has a 52-week low of $177.26 and a 52-week high of $229.50. The stock’s 50-day moving average is $191.4 and its 200-day moving average is $199.0. The company has a market cap of $22.014 billion and a P/E ratio of 44.17.

ICE last issued its quarterly earnings data on Thursday, August 7th. The company reported $2.10 earnings per share for the quarter, beating the analysts’ consensus estimate of $2.02 by $0.08. The company had revenue of $750.00 million for the quarter, compared to the consensus estimate of $776.90 million. During the same quarter last year, the company posted $2.19 earnings per share. IntercontinentalExchange’s revenue was up 171.8% compared to the same quarter last year. Analysts expect that IntercontinentalExchange will post $9.01 EPS for the current fiscal year.

The company also recently declared a quarterly dividend, which is scheduled for Tuesday, September 30th. Stockholders of record on Tuesday, September 16th will be given a dividend of $0.65 per share. This represents a $2.60 dividend on an annualized basis and a yield of 1.36%. The ex-dividend date of this dividend is Friday, September 12th.

 

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