The initiative aims to enhance NYPC's proven "one-pot" capabilities to offer:
New York and London, 14 March 2012 - LCH.Clearnet Limited (LCH.Clearnet), New York Portfolio Clearing LLC (NYPC), The Depository Trust & Clearing Corporation (DTCC) and NYSE Euronext (NYX) today jointly announced that they have agreed to explore expanding the existing combined "one-pot" cross-margining arrangement to include interest rate swaps cleared by LCH.Clearnet.
The parties' goal, defined in a Memorandum of Understanding (MOU), is to deliver greater capital efficiency to market participants by combining NYSE Liffe U.S.-traded interest rate futures contracts already cleared by NYPC, fixed income cash and repo trades cleared by the DTCC's Fixed Income Clearing Corporation (FICC) and interest rate swaps cleared by LCH.Clearnet's SwapClear service into a single portfolio for purposes of margin netting and offsetting. Netting and recognizing offsetting risk within a multi-product single asset class portfolio would be designed to optimize margin requirements on the combined portfolio.
The existing NYPC and FICC "one-pot" arrangement currently offsets margin requirements for both fixed-income cash and repo trades and futures contracts. NYPC also has an open architecture that allows for connectivity to LCH.Clearnet's SwapClear platform. The agreement would extend those benefits to one of the fastest growing asset classes, thereby improving efficiency to market participants. The collaborative arrangements, once in place, would also improve transparency and risk mitigation by creating the opportunity for regulators to obtain a single, combined view of portfolio risk for participants across a wider range of asset classes.
As agreed in the MOU, the parties will assess areas where operational and collateral management efficiencies can be achieved through mutually agreed service level arrangements between the organizations in the United States. All parties have also committed to developing an aligned default management process to protect market participants, as well as the development of payment and settlement mechanisms for non-U.S. dollar products. As was the case with the initial "one-pot" margining plan that was first brought to market in March 2011, the final margining structure and agreements would be subject to the review and approval of both the U.S. Commodity Futures Trading Commission and the U.S. Securities and Exchange Commission. Approvals will also be sought from other regulatory bodies. Additionally, all parties have agreed to develop a joint governance arrangement regarding the combined risk management system and will work together to secure the appropriate regulatory approvals, both in the U.S. and abroad.
"This collaboration presents a tremendous opportunity to provide market participants with a "best-in-class" clearing solution that brings together each of the firms' expertise and resources across an unrivalled and broad spectrum of interest rate products," said Daniel Maguire, Head of SwapClear U.S. "Our working groups - with members from all parties - have done tremendous work over recent months reviewing the potential for this offering and we are excited to continue working together."
"All of our customer firms face new capital requirements from new regulations," said Michael Bodson, Chief Operating Officer, DTCC. "Being able to offset some of that through innovative margining schemes such as what is currently being offered by FICC and NYPC and enhanced through this alliance with SwapClear can be of great benefit to all our clients…and help regulatory authorities as well."
"NYPC is already delivering significant savings to our members daily through our current margining process," said Murray Pozmanter, Interim CEO of NYPC and Managing Director, Clearing Services, DTCC. "Those efficiencies will greatly increase once interest rate swaps from SwapClear are added to the mix."
"By adding interest rate swaps to the same methodology utilized by market participants for the margining of their cash and futures trades, we believe this collaboration provides the market with a creative solution that addresses many of the industry's needs around scarcity of capital and delivers a powerful new value proposition for interest rate futures traded on NYSE Liffe U.S.," said Thomas Callahan, CEO of NYSE Liffe U.S.
Established more than 12 years ago, SwapClear is the only truly global clearing service for interest rate swaps. To date, it has cleared more than 1.5 million OTC interest rate swap trades in 17 of the world's largest currencies. Since 1999, SwapClear has cleared a total notional value of more than $290 trillion, and its membership currently stands at 62. SwapClear is also the only OTC clearing service to successfully handle a significant OTC interest rate swap default, doing so when it resolved Lehman Brothers' $9 trillion IRS default in 2008, resulting in no loss to any market participants. www.swapclear.com
The LCH.Clearnet Group is the leading independent clearing house group, serving major international exchanges and platforms as well as a range of OTC markets. It clears a broad range of asset classes, including securities, exchange-traded derivatives, commodities, energy, freight, interest rate swaps, CDS and euro- and sterling-denominated bonds and repos, and works closely with market participants and exchanges to identify and develop clearing services for new asset classes. LCH.Clearnet has offices in London, New York, Paris and Amsterdam and is regulated or overseen by the national securities regulator and/or central bank in each jurisdiction from which it operates. In the U.S., LCH.Clearnet Limited has been regulated by the CFTC as a DCO since 2001.
New York Portfolio Clearing, LLC (NYPC) is registered as a U.S. Derivatives Clearing Organization with the Commodity Futures Trading Commission. A joint venture of NYSE Euronext and the Depository Trust & Clearing Corporation, NYPC clears interest rate products and supports the cross-margining of fixed income cash products from DTCC's Fixed Income Clearing Corporation with their related, offsetting derivatives trades in a "single pot". For more information, please visit: www.nypclear.com.
DTCC, through its subsidiaries, provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, money market instruments and over-the-counter derivatives. In addition, DTCC is a leading processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks. DTCC's depository provides custody and asset servicing for more than 3.6 million securities issues from the United States and 121 other countries and territories, valued at US$36.5 trillion. In 2010, DTCC settled nearly US$1.66 quadrillion in securities transactions. DTCC has operating facilities and data centers in multiple locations in the United States and overseas. For more information, please visit www.dtcc.com.
About NYSE Liffe U.S.
A unit of NYSE Euronext, NYSE Liffe U.S. is a partnership with eight leading market participants, Citadel Securities, DRW Ventures LLC (an affiliate of DRW Trading Group), GETCO, Goldman Sachs, Morgan Stanley and UBS. It is a global, multi-asset class futures exchange trading a diverse range of products, including the successful Eurodollar and U.S. Treasury interest rate products, a suite of MSCI-based futures and liquid precious metals contracts. In the second quarter of 2012, the exchange plans to launch exclusive new futures contracts based on the DTCC GCF Repo IndexTM. NYSE Liffe U.S. utilizes the proven LIFFE CONNECT® trading platform designed and maintained by NYSE Technologies that matched nearly 4.5 million contracts per day on the NYSE Liffe markets in Europe in 2011. The exchange offers a wide range of global connectivity options allowing members to efficiently transact on the platform in a highly cost efficient manner. For more information, please visit www.nyseliffeus.com