NYSE Euronext (NYX) and the Depository Trust & Clearing Corporation (DTCC) today announced they have finalised their formal agreement to create their innovative new joint venture, New York Portfolio Clearing (NYPC). A draft application for NYPC to be granted status as a Derivative Clearing Organisation with the Commodity Futures Trading Commission (CFTC) and draft amendments to the rules of DTCC’s Fixed Income Clearing Corporation (FICC) are expected to be circulated to the CFTC and Securities and Exchange Commission (SEC), respectively, in the coming weeks. NYPC expects to be operational in the second quarter of 2010, pending regulatory approval.
“NYSE Euronext is thrilled to finalise this groundbreaking agreement with DTCC,” said Thomas Callahan, CEO of NYSE Liffe US. “NYPC is a story of innovation. Because of the strength of our Global Derivatives franchise, NYSE Euronext is singularly positioned to partner with DTCC on this important initiative due to our proprietary technology, strong capital base, broad market connectivity, and our industry leading futures clearing expertise.”
NYPC has the potential to provide substantial capital relief to the industry, while opening the US futures market to new competition. By margining cash and derivatives markets in a “single pot”, rather than through existing cross margining agreements, NYPC will be the first to bring together cash positions and their natural derivatives hedge in an open manner designed to substantially improve both operational and capital efficiency. At the same time, NYPC will significantly increase transparency by giving regulators a more comprehensive tool to manage and mitigate systemic risk across asset classes. FICC handled about US$4.5 trillion in trading each day in the fixed income market in 2008.
“Through our open access model, DTCC intends to support competition in the US futures markets. By extending the unique NYPC risk methodology to multiple markets and products, we will offer our unique capital efficiencies to a wide range of customers and market participants,” said Murray Pozmanter, DTCC managing director, Fixed Income Clearance and Settlement Group. “DTCC looked at several potential providers of derivatives clearing technology. We decided after careful review that NYSE Euronext has the robust, proven and ready technology and appropriate safeguards to ensure a successful launch of this initiative. The other providers did not have the technology to meet those criteria.”
NYPC’s risk and margin methodology will be unique in the industry. The new clearing house will promote competition in the US futures market by accepting and clearing trades from multiple qualifying trading platforms and clearing organisations after an initial period designed to successfully launch and ensure NYPC’s systems and risk management are working optimally and consistent with the requirements of regulators. “A sequential rollout has been endorsed by our Board and our customers as a prudent strategy to minimise implementation risk and to ensure the success of New York Portfolio Clearing,” Pozmanter said.