Nyse Euronext and the Depository Trust & Clearing Corporation (DTCC) are teaming up to create a clearing house for US fixed income derivatives.
The 50/50 joint venture, New York Portfolio Clearing (NYPC), combines Nyse Euronext's futures exchange, Liffe US, and the DTCC's Fixed Income Clearing Corporation (FICC).
By uniting margining of cash positions with natural hedges, the partners say NYPC will improve operational and capital efficiency. It will also provide a single view of risk across asset classes, increasing transparency.
Initially the venture will clear interest rate products traded on Nyse Liffe US, with other exchanges able to be added in the future.
Duncan Niederauer, CEO, Nyse Euronext, says: "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."
Donald Donahue, CEO, DTCC, adds: "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."
NYPC will be powered by Nyse Euronext's clearing technology, TRS/CPS, which currently facilitates member position management for the Liffe market in London and ICE Clear Europe. The DTCC will provide FICC's risk management, settlement, banking and reference data systems.
The venture has been approved by the boards of both companies and should be operational in the second quarter of 2010, subject to definitive documentation and regulatory approval. Former Clearing Corporation CEO, Dennis Dutterer, has been named interim chief executive.
Nyse Euronext has also committed a $50 million financial guarantee as an additional contribution to back the NYPC default fund.
News of the venture comes as authorities in the US push for central clearing of OTC derivatives in bid to increase transparency and cut risk. Proposed regulations outlined yesterday would require standardised OTC derivative contracts to be guaranteed by a clearing house, with all other trades registered with a regulated trade repository.