DTCC Connection

Feb 01, 2012 • DTCC Connection

NYSE Liffe US Will Launch Futures Based on DTCC Index

In a deal that breaks new ground for DTCC, the company has licensed the repo trading data it publishes each day to NYSE Liffe US, the U.S. futures exchange of NYSE Euronext, as the basis of a new futures contract.


The new contract, which NYSE Liffe US expects to have ready for listing in the second quarter of 2012, will be based on DTCC’s GCF (General Collateral Finance) Repo IndexTM, the industry’s source for average daily interest rates in the $400 billion-a-day repo market for U.S. Treasury securities, agency securities and mortgage-backed securities.


“For the first time,” said Gary Chan, DTCC vice president, Product Management, Fixed Income Clearing Corporation, “market participants will be able to hedge interest rate exposure related to overnight funding costs for executed transactions, which is something they can’t do now. By creating this contract, NYSE Liffe is also opening the market up to investors other than the large institutional trading desks that usually use it, which means there will also be increased liquidity.”


Better risk management

According to Thomas Callahan, CEO, NYSE Liffe US, the new product will allow financing desks to hedge interest rate exposure more readily using a liquid, transparent and centrally cleared futures instrument. He said feedback from customers suggests significant demand for this product, which could quickly develop into a new short-term benchmark and another important tool for managing risk.


The trades will be cleared through New York Portfolio Clearing, LLC, (NYPC), the joint-venture derivatives clearinghouse owned equally by DTCC and NYSE Euronext. This will allow the trades to be cross-margined against the cash market trades of U.S. Treasury and agency securities used in repurchase agreements, which are cleared by DTCC’s Fixed Income Clearing Corporation subsidiary.


“NYPC’s one-pot margining approach will be particularly effective,” Chan said, “because the contracts will be based directly on the average cash market repo rates we report at DTCC each day. That means the risk of the futures and underlying cash market trades will tend to offset each other more directly.”


About the index

Repos typically involve a form of short-term secured loans based on the sale of a security and its subsequent repurchase, usually the next day. GCF Repo Index data is utilized by market participants around the world, including bank financing desks and interest-rate swaps traders, as well as industry regulators.


DTCC began publishing a weighted average of daily repo trades on its corporate website (www.dtcc.com) in November 2010, and now provides additional distribution of the index to the trading community worldwide each day as part of the financial market data made available via Bloomberg LP terminals.@

Gary Chan, DTCC vice president, Product Management, Fixed Income Clearing Corporation

Thomas Callahan, CEO, NYSE Liffe US

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