Magazine article Modern Trader

Another Treasury Future

Magazine article Modern Trader

Another Treasury Future

Article excerpt


The Treasury complex has nor been the liveliest sector in the last year, but looks to become much more interesring in 2010 on many levels. Trading volume is picking up in long anticipation of the Federal Reserve's exit strategy (see Chartview). Soon there will be another competitor offering futures on the entire interest rate Treasury complex, as NYSE LifFe U.S. announced plans to launch a complete suite of interest rate futures from three-month Eurodollars to 30-year bonds sometime in the third quarter.

The April announcement was not a surprise, but the challenge to CME Group's dominance in the sector may be the most sound one to date.

"We didn't just roll out of bed and decide to take on the CME," says Tom Callahan, CEO NYSE Liffe U.S. "The goal from the first conversations was to build a world class multi-asset class exchange, so this was the result of two years of hard work."

What makes this challenge more substantial is that it will correspond with the launch of New York Portfolio Clearing (NYPC), a new clearing joint venture between NYSE Euronext and The Depository Trust & Clearing Corporation (DTCC) pending regulatory approval. NYPC must be approved as a derivatives clearing organization by the CFTC and the Securities and Exchange Commission must approve rule changes on the cash side.

Currently all cash Treasuries are cleared through the Fixed Income Clearing Corporation (FICC), a subsidiary of DTCC, though there is no regulatory mandate for this. Industry experts state that the potential clearing efficiency from NYPC along with the NYSE brand make this the strongest challenger to the CME Group interest rate complex to date. "They have something to offer that is a little different. It is going to be cheaper for the end user," says one expert.

NYPC holds the potential for creating significant efficiencies as clearing members will be able to offset cash and futures interest rate positions in one pot. …

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