NYSE Euronext and the Depository Trust & Clearing Corp have finalised plans to develop a new joint venture clearing house, intended to go live in the second quarter of 2010, subject to regulatory approval.
Known as New York Portfolio Clearing, it will offer clearing services for fixed income securities and derivatives.
The idea was unveiled in June but NYSE and DTCC said on October 13 that they were in a position to apply for the status of a designated clearing organisation from the Commodity Futures Trading Commission.
The joint venture plans to submit its application “in the coming weeks”, at the same time as it sends draft amendments to the rules of DTCC’s Fixed Income Clearing Corp to the CFTC and the Securities and Exchange Commission.
The new clearing house will combine NYSE Euronext’s US futures exchange, NYSE Liffe US, with the DTCC’s Fixed Income Clearing Corp (FICC).
The 50-50 joint venture will allow investors to pool margin calls for fixed income securities and derivatives into one portfolio, with a single margin call. New York Portfolio Clearing said this could 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,” said the JV partners.
“At the same time, NYPC will increase transparency by giving regulators a more comprehensive tool to manage and mitigate systemic risk across asset classes. FICC handled about $4.5tr of trading each day in the fixed income market in 2008.”
The joint venture has been criticised by Neal Wolkoff, chief executive of ELX Futures, the new exchange which opened in July and offers US Treasury futures in competition with CME Group. It was founded by eight banks plus trading firms Breakwater, Getco and Peak 6 and broker BGC Partners.
Wolkoff said he believed the DTCC-NYSE Euronext venture would damage competition. “To my knowledge, no SEC-regulated clearing organisation is allowed to have exclusive relationships with one partner,” said Wolkoff.
However, the joint venture later said the new clearing house would accept and clear trades from “multiple qualifying trading platforms and clearing organisations” after an initial trial period.