NYSE Euronext and The Depository Trust & Clearing Corporation have agreed to create a joint venture for clearing US fixed income derivatives.
NYSE Euronext and The Depository Trust & Clearing Corporation have agreed to create a joint venture for clearing US fixed income derivatives.
The new clearing house, New York Portfolio Clearing, will combine the capabilities of NYSE Euronext’s US futures exchange and DTCC’s Fixed Income Clearing Corporation to offer risk management, clearing and settlement efficiencies for US fixed income securities and derivatives.
The initiative has been approved by the boards of both companies and is expected to be operational in the second quarter of 2010, subject to definitive documentation and regulatory approval.
Margining cash and derivatives in a ‘single pot,’ NYPC will bring together cash positions and their natural derivatives hedge in a manner designed to improve operational and capital efficiency. It will provide a single view of risk across asset classes.
NYPC intends to offer an unprecedented level of market transparency that can be used to identify and moderate systemic market risks. It is expected to facilitate more orderly risk mitigation and reduce settlement risks.
‘Recent market dislocation has underscored the need to improve market efficiencies and provide more thorough and timely information about the positions of participants across asset classes,’ says Duncan L. Niederauer, chief executive officer of NYSE Euronext. ‘In uniting NYSE Euronext’s proven strength and expertise in execution with DTCC’s market-leading clearing capabilities, we will help to lower the traditional barriers between the cash and derivatives markets. NYPC will provide a more comprehensive view of participants’ overall risk exposure and increases capital efficiency through a cross-asset class risk management programme.’
‘Partnering with one of the world’s largest and most liquid exchange groups to create NYPC is a significant milestone in DTCC’s mission to mitigate risk and safeguard the integrity of the US financial system,’ adds Donald F. Donahue, chairman and chief executive officer of DTCC. ‘By providing greater transparency of investment positions between cash and derivatives, NYPC will bring a superior match between traders’ total portfolio risk and the underlying margin requirements. Additionally, regulators will gain the ability to monitor market participants’ total exposure across multiple interest rate asset classes in real-time."
NYSE Euronext and DTCC have entered into an exclusive arrangement to pursue a 50/50 joint venture. NYSE Euronext plans to commit a USD50m financial guarantee as an additional contribution to reinforce the safety and soundness of the NYPC default fund.
Pending approval from the US Commodity Futures Trading Commission as well as other required regulatory approvals, NYPC initially will clear interest rate products traded on NYSE Liffe US, with the ability to add other exchanges in the future. It will be powered by NYSE Euronext’s clearing technology, TRS/CPS, which currently facilitates member position management for the NYSE Liffe market in London and ICE Clear Europe.
NYSE Liffe US intends to continue its partnership with The Options Clearing Corp for its precious metals and MSCI equity index products.
Dennis Dutterer will be appointed as interim chief executive of NYPC. Bringing more than 25 years of experience to his new role, Dutterer will oversee a full-time executive team and work closely with the board of directors. He previously spent 20 years at The Clearing Corporation, progressing from general counsel to president and chief executive and member of the board of directors.
