Demand Surges for Clearing
NYPC’s locked-in mechanism delivers expiring U.S. Treasury futures to DTCC for physical delivery.
Demand for cleared services for derivatives has escalated in the post-crisis era as firms seek to mitigate the risks of default.
“In general, the global trend coming from the financial crisis is for more products to be cleared through regulated central counter parties (CCPs) like NYPC,” Walt Lukken, CEO of New York Portfolio Clearing, told Markets Media. “This environment–combined with the timing of NYPC’s launch and its ‘one-pot’ margin efficiencies–bodes well for NYPC’s success in the long run.”
NYPC, a clearing platform for interest rate futures, has successfully executed its second physical delivery of U.S. Treasury futures. NYPC’s “locked-in” trade delivery system seamlessly submitted $1.952 billion notional in expiring U.S. Treasury futures from NYPC to The Depository Trust & Clearing Corporation’s (DTCC) Fixed Income Clearing Corporation (FICC) for physical delivery.
These expiring positions were then automatically netted with all trades the member firms cleared with FICC on that day. This increase represents growth of greater than 50 percent over the $1.275 billion notional at the end of the second quarter of 2011.
The statistics underscore “growing acceptance and confidence of our clearing platform,” said Lukken.
Te heart of the methodology used by NYPC is a locked-in trade delivery mechanism whereby contracts remaining open after the close of trading on the last trading day of the delivery month are automatically submitted as FICC locked-in trades in the underlying U.S. Treasury securities.
As futures approach delivery, they need to converge with cash. With the locked-in system, the delivery of underlying securities takes place automatically.
NYPC, a joint venture of DTCC and NYSE Euronext, allows for “one-pot” margining of eligible interest rate futures positions cleared by NYPC with U.S. Treasury and agency securities and repurchase agreements cleared by DTCC’s Fixed Income Clearing Corporation (FICC).
By combining fixed income securities and listed interest rate futures in a single margin calculation, the clearing solution delivers increased capital and operational efficiencies.
NYPC currently clears Eurodollar and US Treasury futures listed on NYSE Liffe US, the U.S. futures exchange of NYSE Euronext.
Phase 5 of the uncleared margin rules (UMR) took effect from September 2021.
Temporary equivalence is set to expire on June 30 2022.
IRS trading volumes have fragmented without an equivalence agreement.
Phase 5 of the uncleared margin rules came into effect on 1 September.
Triparty repos can be executed across U.S. Treasury securities to central clearing.