(Source: Business Wire)
NYSE Euronext (NYSE: NYX) and The Depository Trust & Clearing Corporation (DTCC) today 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."
Agreement Details
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.
