UPDATE 2-ICE to launch central counterparty for Europe CDS

* Forming central counterparty for European CDS

* ICE Trust Europe to be regulated by UK FSA

* ICE Trust Europe to launch in Q1 2009 (Adds rival exchanges, company statement, background)

NEW YORK, Feb 19 - IntercontinentalExchange Inc said on Thursday it will launch a central counterparty clearinghouse for European credit derivatives that it expects to go live in the first half of this year, pending regulatory approval.

The U.S.-based futures exchange said the new service, called ICE Trust Europe, will clear credit default swaps, or CDS, and will be regulated by the UK Financial Services Authority. It will use the technology at its existing ICE Clear Europe clearinghouse.

ICE Trust Europe -- required for ICE to act as a central counterparty in the approximately $30 trillion over-the-counter market -- will have a segregated risk pool, a separate guaranty fund and margin accounts, ICE said in a statement.

European and U.S. regulators have pushed hard to install one or more central counterparties in the CDS market, which has been blamed for what many say is its role in exacerbating the credit crisis. Exchanges have since proposed that they act as central counterparties.

Atlanta-based ICE said the central counterparty will offer "efficiency and a common market infrastructure to global CDS market participants." The company has also proposed to clear U.S. CDS, but still requires regulatory approval to do so.

"Our aim is to improve the soundness and transparency of the CDS markets, regardless of physical or political borders," Paul Swann, president of ICE Clear Europe, said in a statement related to ICE Trust Europe.

ICE agreed in October to acquire the broker-owned Clearing Corp to provide technology for ICE's U.S. CDS clearinghouse, a New York-based trust company called ICE Trust. The deal gave ICE the backing of nine major broker-dealers, representing a significant endorsement for its clearinghouse.

NYSE Euronext's LIFFE derivatives arm has already begun clearing index-based CDS contracts in Europe, although the company's management said last week there was so far little action to report.

Derivatives exchange Eurex, owned by Deutsche Boerse, has also proposed to clear European CDS, while Chicago-based derivatives exchange CME Group Inc has proposed to both clear and trade CDS in the United States.