* Says CME should not decide ICE position limits
* Q2 net EPS 97 cents; EPS ex-items $1.12
* Revenue up 27 percent at $250.4 million
* Earnings meet expectations, but shares down 3.2 pct (Recasts with management comments, adds share fall, byline)
By Jonathan Spicer
NEW YORK, Aug 4 (Reuters) - IntercontinentalExchange Inc (ICE.N), facing possible derivatives market reforms, on Tuesday hit out at what it called an "untenable" situation where arch rival CME Group Inc (CME.O) decides position limits for both exchanges.
The futures exchange and clearinghouse operator also reported a 15 percent drop in quarterly profit due to higher expenses and a one-time charge. But the possible clampdown on speculation in U.S. commodity and energy trading was the hot topic on a conference call with analysts and media.
Jeffrey Sprecher, ICE's chief executive, said that "excessively limiting market participation will only serve to increase market volatility." He said oversight changes were very likely, given the political thirst for market reform.
But Sprecher, who last week testified at a Commodities Futures Trading Commission hearing on the issue, stressed the need for the regulator to replace the CME in setting limits on energy market participants.
"I am concerned that a competitor is setting limits on us. And in the world of setting limits on this company (ICE), I would much rather trust the U.S. government than have a competitor set them," he said.
"This is an untenable position in properly overseeing our regulated markets, as we have no view into the process for setting position limits, or granting hedge exemptions."
CFTC, the regulator, is considering position limits to prevent dominant players from manipulating prices, especially in oil, which soared to $147 a barrel a year ago. Any curbs could hamper futures trading volumes on ICE, which also runs markets in Europe and Canada.
There are currently no position limits on open interest in energy products. Instead, CME, which is much older than ICE, determines the levels at which participants are "accountable" in futures-linked contracts.
As for the threat to volumes, Sprecher said, "I honestly believe that money will find its way into these markets" even if the CFTC makes changes that "syndicate risk."
ICE and CME have argued that prices are determined largely by supply and demand, and that limits would drive participants away from U.S. markets, making prices more volatile.
The CFTC holds its third hearing on the issue Wednesday.
ICE shares were down 3.2 percent to $92.98 in midday trade despite posting second-quarter earnings that were in line with Wall Street expectations.
ICE, which has taken the lead in clearing credit default swaps, repeated its modest 2009 revenue forecast for the venture -- which may have weighed on shares, said Edward Ditmire, an analyst at Fox-Pitt Kelton.
"This has been a hot stock lately and it could cool after this," he said. "In the near term, the regulatory threats are certainly pertinent to much larger slices of their business."
ICE earned $72.0 million, or 97 cents per share, in the second quarter, down from $84.9 million, or $1.19 per share, a year earlier.
Excluding a charge from selling part of its stake in a Mumbai exchange and other one-time items, the Atlanta-based company earned $1.12 per share, matching the average Wall Street forecast.
ICE's first full quarter of CDS clearing, as well as record U.S. futures volumes, boosted revenue 27 percent. Expenses jumped 79 percent on the back of $35 million in new costs related to Creditex, the CDS processor ICE acquired last year.
The company logged a $9 million impairment charge after agreeing to sell part of its 8 percent stake in NCDEX, the Mumbai-based derivatives exchange it invested in in 2006. The Indian government has suspended trading in several contracts and capped foreign investment in NCDEX at 5 percent.
Sprecher said ICE paid "much too much" for the NCDEX stake.
Regulators on both sides of the Atlantic are pushing for central clearing of all eligible CDS -- contracts that insure against debt default. The $27 trillion market has been blamed for exacerbating the financial crisis that exploded last year.
Open interest in ICE's U.S. CDS clearing platform, which launched in March, is now more than $170 billion. Its European clearinghouse launched last week, competing with Deutsche Boerse's (DB1Gn.DE) Eurex exchange.
Several banks have profit-sharing deals with ICE and back the exchange's clearinghouses. ICE said in May it expects U.S. CDS clearing to yield up to $30 million in revenue and up to $24 million in expenses through the rest of the year. (Reporting by Jonathan Spicer; editing by John Wallace)