DTCC News In Brief
NYSE Euronext and DTCC Finalize Joint Venture Agreement to Create New York Portfolio Clearing
NYSE Euronext (NYX) and The Depository Trust & Clearing Corporation (DTCC) have finalized their formal agreement to create their innovative new joint venture, New York Portfolio Clearing (NYPC). A draft application for NYPC to be granted status as a Derivative Clearing Organization with the Commodity Futures Trading Commission (CFTC) and draft amendments to the rules of DTCC’s Fixed Income Clearing Corporation (FICC) are expected to be circulated to the CFTC and Securities and Exchange Commission (SEC), respectively, in the coming weeks. NYPC expects to be operational in the second quarter of 2010, pending regulatory approval.
“NYSE Euronext is thrilled to finalize this groundbreaking agreement with DTCC,” said Thomas F. Callahan, Chief Executive Officer of NYSE Liffe U.S. “NYPC is a story of innovation. Because of the strength of our Global Derivatives franchise, NYSE Euronext is singularly positioned to partner with DTCC on this important initiative due to our proprietary technology, strong capital base, broad market connectivity, and our industry-leading futures clearing expertise.”
NYPC has the potential to provide substantial capital relief to the industry, while opening the U.S. futures market to new competition. By margining cash and derivatives markets in a “single pot,” rather than through existing cross-margining agreements, NYPC will be the first to bring together cash positions and their natural derivatives hedge in an open manner designed to substantially improve both operational and capital efficiency. At the same time, NYPC will significantly increase transparency by giving regulators a more comprehensive tool to manage and mitigate systemic risk across asset classes. FICC handled about $4.5 trillion in trading each day in the fixed income market in 2008.
“Through our open access model, DTCC intends to support competition in the U.S. futures markets. By extending the unique NYPC risk methodology to multiple markets and products, we will offer our unique capital efficiencies to a wide range of customers and market participants,” said Murray Pozmanter, DTCC Managing Director, Fixed Income Clearance and Settlement Group. “DTCC looked at several potential providers of derivatives clearing technology. 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. The other providers did not have the technology to meet those criteria.”
Markit and DTCC Launch MarkitSERV
Markit and The Depository Trust & Clearing Corporation (DTCC) have launched MarkitSERV, a new company that combines the two organizations’ electronic trade confirmation and workflow platforms to provide a single gateway for over-the-counter (OTC) derivative trade processing.
The strategic partnership was first announced in July last year, subject to completion of due diligence, regulatory filings and approval by relevant global regulators. Due diligence is now complete and MarkitSERV has received regulatory approval from the U.K. Financial Services Authority and the U.S. Department of Justice.
Jointly owned by DTCC and Markit, MarkitSERV will combine the DTCC Deriv/SERV and Markit Wire trade confirmation platforms to cover all major asset classes including credit, interest rate, equity and commodity derivatives. It will connect multiple market participants and execution venues to downstream processing platforms such as DTCC’s Trade Information Warehouse for credit default swaps (CDS). It will also connect to various central counterparty platforms for interest rate swaps and CDS, in collaboration with the DTCC Trade Information Warehouse.
MarkitSERV was created in response to calls from regulators, politicians and market participants for greater cooperation within the industry over infrastructure to accelerate the adoption of electronic trade confirmation and reduce risk in the OTC derivative markets.
DTCC Files Application to Establish its Trade Information Warehouse as a Regulated Trust Company
DTCC has filed applications to establish a limited purpose trust company that will house the functions of DTCC’s Trade Information Warehouse for credit derivatives. The new company, to be called The Warehouse Trust Company LLC, has filed applications for membership in the Federal Reserve system and with the New York State Banking Department (NYSBD) to form a limited purpose trust company and will become a wholly-owned subsidiary of DTCC Deriv/SERV LLC, which operates DTCC’s automated services for OTC derivatives.
It is expected that in the new company, the Trade Information Warehouse for credit derivatives will become subject to a collaborative global regulatory scheme involving interested regulators in Europe as well as the US. The new trust company will also establish a subsidiary in Europe to facilitate the offering of regulated Warehouse services in Europe.
DTCC Renews Call for Public Mandate Supporting Trade Repositories for OTC Derivatives
DTCC has called for legislative language mandating a trade repository for over-the-counter (OTC) credit derivatives contracts in testimony submitted to the House Financial Services Committee.
Larry E. Thompson, DTCC General Counsel, said, “As the operator of the only global trade repository, we have a unique perspective on its value in helping regulators mitigate systemic risk during a crisis. We believe that all derivatives traded by U.S. financial institutions should be reported to a single trade repository for each asset class, which would serve regulators as a comprehensive source of information. From a public policy perspective and in the interests of ensuring the stability and transparency of financial markets, there must be a consolidated, comprehensive single entity that collects and maintains the underlying position data and makes it available to regulators in the most efficient, timely and usable manner.”
In the testimony, Thompson expressed concern that current legislative proposals, which require only those trades that are not cleared through a central counterparty (CCP) to be reported to a repository, could undermine the goals of re-regulation and represent a step backward by reducing the level of transparency that now exists in the marketplace.
DTCC has publicly stated that it will support all efforts to create central counterparty (CCP) services planned in the U.S. and overseas on a non-discriminatory basis. Thompson stressed that when both the CCP and repository work in tandem to support each others functions, risk can be significantly mitigated – and transparency enhanced in the marketplace.
DTCC Announces Plans to Relocate a Significant Portion of Northeast Staff to New Jersey
The Depository Trust & Clearing Corporation has announced plans to relocate a significant portion of the DTCC staff based in the Northeast U.S. to a new location in New Jersey when its current lease expires at the end of 2012. Under the plan, DTCC will relocate about 1,600 staff members to Newport Office Center in Jersey City, on the Hudson River waterfront across from Manhattan, with employees expected to move in early 2013.
“After lengthy deliberations with officials in New York and New Jersey, we have concluded that a move to New Jersey is the right decision,” said Donald F. Donahue, DTCC Chairman and CEO. “New Jersey offers us a favorable business climate, convenient access to our customers in the greater metropolitan area and also allows us to disperse our staff more widely for business continuity purposes. New Jersey will benefit from an infusion of 1,600 highly-skilled professionals who specialize in financial services, information technology and operations. We are also excited to tap into New Jersey’s skilled workforce as our business grows in the future.”
While the bulk of DTCC’s Northeast-based staff will make the move to New Jersey, DTCC will retain a headquarters location and approximately 700 employees in lower Manhattan, as part of its ongoing and long-standing commitment to New York City and State.