When New York Portfolio Clearing (NYPC) filed its application with the Commodity Futures Trading Commission (CFTC) for derivatives clearing organization (DCO) status in November, ELX Futures CEO Neal Wolkoff, a potential competitor of the new NYSE Euronext Treasury complex set to launch in the first quarter, noted that it was premature because there was no Securities and Exchange Commission (SEC) rule filing.
Since then, the Fixed Income Clearing Corporation (FICC), a division of the Depository Trust and Clearing Corporation (DTCC), has filed rule changes with the SEC regarding cross margining agreements between the FICC and NYPC.
The NYSE Euronext plan to launch a full suite of Treasury contracts in the first quarter is contingent on the dual launch of NYPC, which will clear both cash and futures Treasury products in a one-pot clearing structure based on a unique agreement between NYSE Euronext and DTCC.
According to the filing, the FICC will offer “cross-margining of certain positions cleared at its Government Securities Division (GSD) and certain positions cleared at NYPC." In essence, NYPC clearing members will be able to clear cash and futures in one pot.
Wolkoff has argued that the agreement between the DTCC and NYPC is anti-competitive because the DTCC has a monopoly on cash Treasuries. In a comment letter ELX states that the NYPC DCO application fails to meet core principles regarding antitrust considerations.
Walt Lukken, CEO of NYPC, says, "Once the clearinghouse is up and running it would allow other exchanges to access the efficiencies that it will offer once it is operationally feasible." Lukken estimates the one-pot clearing method will add an additional 15-30% in margin efficiencies to clearing members.