You’ve probably never heard of IntercontinentalExchange, or ICE, even though it’s based right here in Atlanta. But in the global world of credit default swaps and derivatives trading that is now drawing so much attention, ICE stands as a giant.
Among other things, ICE acts as a clearinghouse for credit swaps and derivatives, putting buyer together with seller and guaranteeing the transaction to both parties. One ICE subsidiary, ICE Trust, announced in March that during its first year of operation, it had “cleared $4.3 trillion in gross notional value on more than 55,000 transactions” involving credit default swaps. According to BusinessWeek, ICE’s two clearinghouse operations have processed $6.4 trillion of trades — again “notional value” — since March 2009. (”Notional value” means the maximum amount that might conceivably be at play in those trades; the real value is considerably less.)
Nonetheless, those are big numbers, and they are likely to get bigger still, given that the total derivatives market is estimated at $600 trillion in notional value. (ICE collects a very tiny percentage of such deals as a fee, but a very tiny percentage of a very big number can get pretty large itself. Founded in 2000, ICE already boasts a market capitalization of $8.2 billion.)
Not surprisingly, the company is very interested in new laws being drafted in Washington. Among other things, those changes could drive a significant amount of new business through ICE. Many transactions that are now conducted privately, between buyers and sellers, would have to be conducted instead through an exchange such as ICE, where regulators could monitor what was happening.
However, other proposed changes in the law might not be so friendly. For example, ICE does an awful lot of derivatives business with big banks such as Goldman Sachs and JP Morgan Chase, which also own part of the company. Under changes approved Wednesday by the Senate Agriculture Committee, those banks would have to cease derivatives trading and spin off those operations into separate units. The theory is that derivatives trading creates too much risk for banks that rely on the Federal Deposit Insurance Corp. to guarantee their stability. Under the proposed bill, banks could trade derivatives, or be FDIC-insured, but not both. That seems perfectly logical and even necessary, given the role that derivatives played in Wall Street’s meltdown.
To protect its interests, ICE recently hired a new lobbyist in Washington, a step that brought it into the limelight in a less than positive way. That lobbyist, Peter Roberson, had worked as a senior advisor with the House Financial Services Committee in writing the House version of derivatives legislation. When Committee Chairman Barney Frank heard about the hiring, he angrily ordered committee staff not to have any contact with Roberson whatsoever as long as Frank still runs the committee.
According to reports filed at the Federal Elections Commission, ICE and its top executives have also been active in the campaign contribution front.
For example, Sen. Saxby Chambliss, the Georgia Republican, is the ranking GOP member on the Senate Agriculture Committee, which has a lead role in regulating derivatives trading. (That’s because derivatives and credit swaps began as ways to manage risk in commodities such as cotton, corn and pigs.) Chambliss is deeply unhappy with the bill as approved by the committee Wednesday, claiming that it is too harsh on the industry and too punitive.
According to Opensecrets.org, ICE executives and the company’s political action committee have donated more than $60,000 to their home-state senator since 2005, making the company Chambliss’s third most generous donor, after the Club for Growth and the Southern Company. Last year, ICE executives also donated $15,000 to Chambliss’s personal leadership PAC, The Republican Majority Fund.
While that PAC is supposed to raise money for GOP candidates, an awful lot of its contributions are used instead to finance resort golf outings for Chambliss and lobbyist friends. In the 2007-08 reporting cycle, for example, The Republican Majority Fund spent $778,971, but only $205,500 made its way into GOP campaign coffers. More than a third was spent on “entertainment, travel and events,” and among the fund’s biggest recipients were the Ritz-Carlton Naples ($57,894), Caves Valley Golf Club outside Washington ($45,914) and Pebble Beach Resorts ($19,341.)
However, Chambliss was hardly alone as a beneficiary of ICE. According to Federal Election Commission records, the Ag Committee chair, Democrat Blanche Lincoln of Arkansas, received $13.050 in the last two years from ICE execs, while Senate Banking Committee chair Chris Dodd received $14,600.
Another Georgia politician, U.S. Rep. David Scott, is a member of the House Financial Services Committee and sits on its Capital Markets and Financial Institutions subcommittees . The Atlanta Democrat has received $31,850 from ICE executives since 2006. (I could find no record of ICE-related contributions to Frank, the chair of that influential committee, which strikes me as … interesting, especially given Frank’s outburst of anger when ICE hired that top committee aide as lobbyist.)
Other Georgia congressmen have also received ICE donations. Since 2006, GOP Rep. Tom Price has gotten $7,800; Sen. Johnny Isakson has netted $9,150; Democratic Rep. John Barrow has received $10,600 and Democrat Jim Marshall has accepted $10,850.
The heavy money, however, has gone to party campaign funds. The Democratic Senate Campaign Fund received $28,500 from ICE CEO Jeffrey Sprecher in 2007, while the National Republican Senatorial Committee has collected a whopping $115,900 from Sprecher and ICE Vice President Kelly Loeffler.
None of that suggests any kind of illegal act by anybody involved. It merely offers an interesting window into the way politics, money and power intertwine on an issue like this. With billions of dollars at stake in the writing of highly detailed legislation, the amount of money it takes to get a politician’s ear if not his vote doesn’t amount to crumbs that might fall from the table.
But apparently it pays off.