DTCC: NYSE Euronext Had The Best Tech For Clearing Venture
October 13 2009 - 3:54PM
Dow Jones News
The Depository Trust & Clearing Corp. said Tuesday that NYSE
Euronext (NYX) was the best partner for a new derivatives
clearinghouse because other parties' technology wasn't up to
snuff.
Trans-Atlantic exchange operator NYSE Euronext is working with
the DTCC, a provider of post-trade services, to create New York
Portfolio Clearing, which will clear cash Treasurys alongside
related derivatives products.
The partnership has drawn complaints from ELX Futures LP, a
start-up futures exchange also targeting the Treasurys market,
which says that the NYPC partnership unfairly prohibited ELX from
setting up a similar arrangement with the DTCC.
In a news release Tuesday, NYSE Euronext and the DTCC said that
the NYPC venture will formally file for regulatory approval in the
coming weeks, and continues to target a launch in the second
quarter of 2010.
Murray Pozmanter, managing director of the DTCC's fixed income
clearance and settlement group, added Tuesday that the company
evaluated "several potential providers of derivatives clearing
technology" for the venture before teaming with NYSE Euronext in
June.
"We decided after careful review that NYSE Euronext has the
robust, proven and ready technology and appropriate safeguards to
ensure a successful launch of this initiative," Pozmanter said in a
statement. "The other providers did not have the technology to meet
those criteria."
NYSE Euronext already operates its own U.K.-based clearinghouse
Liffe Clear, in conjunction with Anglo-French clearing house
LCH.Clearnet.
ELX, which is backed by a consortium of banks, trading firms and
technology companies, outsources its clearing functions to the
Chicago-based Options Clearing Corp.
Clearing, in which a central counterparty acts as the buyer to
every seller and the seller to every buyer, mitigates risk for
traders and is a key profit center for exchanges that run their own
clearinghouses.
The ability for exchanges to clear their own products in-house
has also made it tough for competitors to make inroads against
Chicago-based CME Group Inc. (CME), which controls more than 90% of
U.S. futures trade.
NYSE Euronext and the DTCC plan to open up the New York
Portfolio Clearing facility to outside parties like ELX after a
period of exclusivity, expected to be two years from launch; NYSE
Euronext and DTCC officials declined to confirm the length of the
exclusivity period.
Neal Wolkoff, chief executive of ELX, has said three years is
too long for a startup exchange like his to wait.
DTCC operates as an industry-owned utility, as does the OCC, and
ELX has told regulators that this sort of organization should not
be allowed to enter into partnerships that exclude other
parties.
Wolkoff has said that ELX plans to raise its concerns with the
Securities and Exchange Commission and the Commodity Futures
Trading Commission after formal filings are made for NYPC.
-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117;
jacob.bunge@dowjones.com