New York Portfolio Clearing, a start-up clearinghouse co-owned by NYSE Euronext, won regulatory approval to clear derivatives, paving the way for competition with futures exchange giant CME Group Inc.
NYPC, jointly owned by the Big Board’s parent and the Depository Trust and Clearing Corp, will clear interest rate futures offered by NYSE Euronext’s U.S. futures exchange, NYSE Liffe, a statement from the U.S. Commodity Futures Trading Commission said.
But the regulator withheld approval of a key part of NYPC’s business plan, the ability to offset margins deposited at the clearinghouse to back futures against margins put up to guarantee holdings in Treasury securities.
The so-called cross-margining would have cut costs substantially for traders who now use CME.
“If you look at all the different challenges to CME, it was always apples to apples,” said Paul Zubulake, senior analyst at Aite Group. “So this is the first time that we’re seeing something adding value to the ultimate end user of these contracts.”
The CFTC said it was still considering a key request by the clearinghouse to offer cross-margining between U.S. Treasury futures and Treasury securities. The cross-margining agreement also needs approval from the Securities and Exchange Commission, which has until February 28 to make its decision.
NYSE Euronext Chief Executive Duncan Niederauer has said he plans to start offering interest-rate futures cleared through NYPC by mid-March. He also plans to eventually use the clearinghouse to break into clearing of over-the-counter interest-rate swaps, a $400 trillion industry that will be mostly forced into clearinghouses by recent Wall Street reform.
Even if NYPC wins cross-margining approval from the CFTC, its success is not guaranteed, Zubulake said.
“Until they open it up to everybody, the response could be muted in the beginning,” he said. “Liquidity is still going to be the deciding factor in where you trade.”
CME Group currently dominates trading of interest-rate futures in the United States.
