ELX Futures Voice Objections To NYSE-DTCC Partnership
October 09 2009 - 12:36PM
Dow Jones News
ELX Futures LP, the start-up Treasury futures exchange, is
contending that a partnership between NYSE Euronext (NYX) and the
Depository Trust and Clearing Corp. unfairly excludes
competitors.
DTCC, a provider of post-trade services, signed an exclusive
deal with the new U.S. futures arm of NYSE Euronext to clear cash
Treasurys and derivative products.
The bank-controlled ELX group said this has frustrated its own
efforts to set up a similar clearing framework, and it has
discussed its concerns with regulators, including the Securities
and Exchange Commission.
"To my knowledge, no SEC-regulated clearing organization is
allowed to have exclusive relationships with one partner," ELX
Chief Executive Neal Wolkoff said in an interview.
NYSE Euronext officials argue that the DTTC partnership will
boost competition in the U.S. futures market by introducing a more
open clearing model. That's a departure from the current structure,
whereby futures exchanges generally clear their own products, with
the CME Group Inc. (CME) dominating the Treasury market despite the
recent entry of ELX.
In June, NYSE Euronext and DTCC announced plans to develop New
York Portfolio Clearing, a clearinghouse that would bring cash and
derivatives positions under one roof and eliminate the need for
investors to post trade collateral at two separate venues.
The venture, expected to launch in the second quarter of 2010,
leverages DTCC's Fixed Income Clearing Corp. unit, which handles
more than $4 trillion in U.S. government and mortgage-backed
securities trades each day.
Liffe US, the NYSE Euronext derivatives platform, aims to
develop futures linked to those issues, in competition with
CME.
ELX went live in July and has secured around 2.5% of the
Treasury futures market.
Wolkoff said ELX and its clearinghouse, the Options Clearing
Corp., had held talks with DTCC about a clearing venture before
NYSE Euronext stepped in.
Wolkoff said that according to senior DTCC officials, terms of
their NYSE partnership carry an exclusivity clause for the period
of development and two years afterward. That would preclude ELX or
any other exchange from developing similar cross-margining services
until 2012, he said.
"We continue to be interested in cross-margining, but we're
unable to engage in those discussions - it's frustrating," said
Wolkoff.
Tom Callahan, chief executive of NYSE Liffe US, declined to
confirm the length of the exclusivity period, but said some time
was necessary for the exchange and DTCC to earn back their
investment.
NYSE Euronext has committed $50 million to the venture's
guarantee fund, in addition to contributing manpower and its
existing clearinghouse technology.
At the end of the period of exclusivity, Callahan said other
exchanges will be allowed to plug into NYPC and take advantage of
margin offsets between cash positions held at the FICC and
corresponding derivatives.
"The margin efficiencies we're building will be available to the
entire market, level the playing field and introduce competition to
the U.S. futures market," Callahan said.
Wolkoff called that arrangement unsatisfactory for a start-up
like ELX.
DTCC operates an industry-owned utility, as does the OCC, and
ELX charged that this sort of organization should not enter into
partnerships that exclude other parties.
"OCC believes that national clearing utilities have a duty to
provide open access to the utility," an OCC spokesman said.
A DTCC spokesman declined to comment.
NYPC needs governmental approval before it goes live, and
Wolkoff said that he has already raised his concerns privately in
conversations with regulators.
When NYSE Euronext and the DTCC formally file for regulatory
approval of the venture, Wolkoff said that ELX would make its
objections known again.
-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117;
jacob.bunge@dowjones.com