NYSE Euronext named a group of 10 banks, brokers and proprietary trading firms as inaugural members of New York Portfolio Clearing, a clearing house behind the launch on Monday of the New York-based exchange’s attempt to break the CME Group domination of trading in interest rate and bond futures contracts.
The move is the culmination of an 18-month effort by NYSE Euronext to prepare the ground for an assault on the CME’s Eurodollar futures business, which has repeatedly withstood challenges from earlier rivals, including by Euronext-Liffe, now the futures exchange known as NYSE Liffe and part of NYSE Euronext.
The New York-based group, which is pursuing a merger with Deutsche Börse, hopes that it stands a chance of winning market share by allowing traders to reduce the total amount of margin collateral required by allowing the margin held in accounts for derivatives and cash-based fixed income products to be used.
The system, known as “one-pot margining”, has been devised by New York Portfolio Clearing (NYPC), a new clearing house jointly owned and operated by NYSE Liffe and The Depository Trust & Clearing Corporation, the US securities and bonds clearing and settlement group, also based in New York.
Capital requirements will be cut by an average of 30 per cent, according to Walt Lukken, the NYPC chief executive. Speaking at the Futures Industry Association’s annual conference in Florida, he said that reducing the capital that market participants must post to clearing houses would be attractive at a time when capital was becoming more expensive because of the financial crisis, combined with new clearing obligations as a result of the Dodd-Frank act and Basel capital requirements for banks.
Thomas Callahan, chief executive of NYSE Liffe US, the US platform of NYSE Liffe where the new contracts will be traded, said: “Capital efficiency is going to be key to generating liquidity. Market structure has never been so up for grabs.”
The clearing members are Advantage Futures, Barclays Capital, Getco, Goldman Sachs, Morgan Stanley, Ronin Capital, Rosenthal Collins Group, UBS Securities and futures brokers Newedge and MF Global.
Getco and Ronin Capital, both proprietary trading firms, join market makers on NYSE Liffe US including Citadel, Goldman Sachs and DRW Trading.
NYPC also said that Bank of America Merrill Lynch, Citigroup and Deutsche Bank were in the process of becoming members.