NYSE Euronext and DTCC to create joint venture for more efficient Clearing of U.S. Fixed Income Securities and Derivatives
NYSE Euronext and DTCC to create joint venture for more efficient Clearing of U.S. Fixed Income Securities and Derivatives - Will unite margining of cash positions with natural hedges for the first time - To provide unprecedented levels of transparency, single view of risk across asset classes - Industry veteran Dennis Dutterer to be appointed interim Chief Executive Officer
NYSE Euronext (NYSE: NYX) and The Depository Trust & Clearing Corporation (DTCC) agreed to create a joint venture for clearing U.S. fixed income derivatives. The new clearing house, New York Portfolio Clearing , “NYPC”, will combine the industry-leading capabilities of NYSE Euronext’s U.S. futures exchange (NYSE Liffe U.S.) and DTCC’s Fixed Income Clearing Corporation (FICC) to offer innovative risk management, clearing and settlement efficiencies for U.S. 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 substantially improve operational and capital efficiency. It will provide a single view of risk across asset classes. As a result, 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,” said 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 program.”
“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 U.S. financial system,” added 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 $50 million financial guarantee as an additional contribution to reinforce the safety and soundness of the NYPC default fund.
Pending Registered Derivatives Clearing Organization status approval from the U.S. Commodity Futures Trading Commission as well as other required regulatory approvals, NYPC initially will clear interest rate products traded on NYSE Liffe U.S. , with the ability to add other exchanges in the future. NYPC will be powered by NYSE Euronext’s market leading clearing technology, TRS/CPS , which currently facilitates member position management for the NYSE Liffe market in London and ICE Clear Europe. DTCC will provide FICC’s market-leading capabilities in risk management, settlement, banking and reference data systems.
NYSE Liffe U.S. intends to continue its successful partnership with The Options Clearing Corp., for its precious metals and MSCI equity index products.
"This groundbreaking clearing initiative is a clear demonstration of the serious, long-term commitment of NYSE Liffe U.S. to establish a world-class U.S. futures exchange for our customers," said Thomas F. Callahan, Chief Executive Officer of NYSE Liffe U.S. "In partnership with DTCC, we now have the ability to differentiate NYSE Liffe U.S. not only with innovative products, market leading technology, and competitive pricing, but also with powerful risk management, clearing and settlement efficiencies in the fixed income markets."
"We are very pleased to extend the tremendous efficiencies FICC currently delivers to the U.S. Treasury, Agency, MBS and Repo markets into the interest rate derivatives market," said Murray Pozmanter, DTCC Managing Director, Fixed Income Clearance and Settlement Group. "Through NYPC, DTCC’s growing membership of sellside and buyside firms will be able to achieve enhanced capital efficiencies to more effectively manage their businesses."
Dennis Dutterer will be appointed as interim CEO of NYPC. Bringing more than 25 years of experience to his new role, Mr. 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 CEO and member of the Board of Directors. He also served as interim president and CEO at the Chicago Board of Trade, a partner at the Washington Law firm Wiley, Rein & Fielding and general counsel of the Commodity Futures Trading Commission.