NY Clearing House Creates New Investment Formats

by Glen Shapiro, LawAndTax-News.com, New York

21 October 2009

NYSE Euronext (NYX) and The Depository Trust & Clearing Corporation (DTCC) have agreed to create an innovative new joint venture, New York Portfolio Clearing (NYPC), which should be operational in the second quarter of 2010, pending regulatory approval.

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 organizations after an initial launch period designed to 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 minimize implementation risk and to ensure the success of New York Portfolio Clearing,” said Murray Pozmanter, DTCC Managing Director, Fixed Income Clearance and Settlement Group.

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 improve both operational and capital efficiency.

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 USD4.5 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 Pozmanter. “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.”

NYPC will be a 50/50 joint venture between NYSE Euronext and DTCC. NYSE Euronext plans to commit a USD50m financial guarantee as an additional contribution to reinforce the safety and soundness of the NYPC default fund.

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