Another contender

By the time you read this there will be another competitor for U.S. Treasury futures business as NYSE Liffe U.S. announced a March 21 planned launch of its fixed income complex. The announcement came the day New York Portfolio Clearing (NYPC) received final regulatory approval of its "one-pot" cross-margining arrangement between cash fixed income positions cleared by the Depository Trust & Clearing Corporation’s (DTCC) Fixed Income Clearing Corporation (FICC) subsidiary and interest rate futures positions cleared by NYPC.

NYSE Liffe will launch Eurodollar futures on March 21, followed by a full suite of Treasury futures a week later. They will be the third exchange offering fixed-income futures. The Chicago Board of Trade, part of CME Group, has withstood many challenges to its Treasury complex, and CME has maintained dominance in Eurodollar futures since introducing them in the 1980s. ELX futures, which launched in 2009 and offers a full suite of fixed-income futures, recently has set volume records but hasn’t been able to produce more than single-digit market share.

While there have been many challenges to the Chicago exchanges’ dominance in Treasury futures, the most recent brings something new to the table — the ability to clear cash and futures positions in one pot.

NYSE Liffe U.S CEO Tom Callahan said, "We fully understand that competing in the interest rate arena against a franchise as well established and well defended as CME would take a really big idea. For us NYPC is that big idea."

NYPC is a 50/50 joint venture between DTCC and NYSE Euronext.

The clearing structure, two years in the making, looks to add a margin efficiency advantage over the CME Group’s fixed-income complex that other challengers did not have. "We believe our efforts are transformational," says NYPC CEO Walt Lukken. "[By] bridging the securities world and futures world together for the first time at the clearinghouse level [we] will bring significant efficiency to firms that are trading through [NYSE Liffe] and clearing through NYPC."

CME Group managed to steal some of NYPC’s thunder by announcing, the day before NYPC received final approval, a new type of membership that would provide many of the same margin offsets to customers trading fixed-income futures.

The Financial Instruments Clearing Membership (FICM) is actually an old structure that was originally used to manage cash and futures currencies.