The Commodity Futures Trading Commission granted a clearing license to New York Portfolio Clearing, a joint venture of NYSE Euronext and the Depository Trust & Clearing Corp. to back interest-rate futures with its clearinghouse.
NYPC also wants to offer margin offsets by linking futures trades to cash Treasury positions in the same clearinghouse. That plan still needs CFTC approval, the agency said today. It also requires the approval of the Securities and Exchange Commission, which oversees the Fixed Income Clearing Corp., a DTCC unit.
The joint venture is aimed at competing with CME Group Inc., the world’s largest futures exchange and home to 98 percent of U.S. futures transactions. An investor who owned a Treasury bill and an offsetting short futures position, for example, would be viewed as effectively flat on the trade, reducing the amount of cash pledged to the clearinghouse, according to New York-based NYPC.
New York Portfolio Clearing plans to allow several exchanges or trading platforms to connect to its clearinghouse, giving investors the ability to offset margins using a variety of products that span asset classes. That would differ from CME Group, where investors who enter into Eurodollar contracts or other futures must close out their transactions at the exchange, a feature of futures markets that’s known as vertical clearing.
Walter Lukken, the former head of the CFTC, was named chief executive officer of NYPC in April 2010.
Clearinghouses, capitalized by their members, are intended to lessen the effects of a bank default by guaranteeing counterparty payment. Each day they collect margins on open trades to keep accounts current and allow regulators to monitor prices and positions.
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