Frequently Asked Questions

What is the purpose of NYPC?
New York Portfolio Clearing (NYPC) is a joint venture between The Depository Trust & Clearing Corporation (DTCC) and NYSE Euronext that 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). NYPC is a Commodity Futures Trading Commission (CFTC)-registered Derivatives Clearing Organization (DCO). NYPC is the first derivatives clearing solution to bring together fixed income securities and listed interest rate futures in a single margin calculation, delivering increased capital efficiency, unprecedented market transparency and significant operational efficiencies to the market. 

How are NYPC’s capital efficiencies unique?
NYPC is the first clearing provider to offer “one-pot” margin offsets across the fixed income cash and derivative markets. Put simply, the new clearinghouse brings together fixed income cash and derivative positions in a single margin calculation, which in turn allows these positions to be netted in a single pot. Viewing these highly correlated, offsetting transactions as a single portfolio allows traders to more efficiently manage their capital and market risk.

How is NYPC a catalyst for competition in the U.S. futures market?
NYPC opens the door for multiple exchanges to compete in the U.S. futures market by utilizing a “horizontal” or open access clearing model. All exchanges clearing at NYPC are permitted to share in the single pot. Futures contracts from multiple exchanges clearing at NYPC are viewed together with FICC cash positions in a single margin calculation. This horizontal clearing model provides a powerful platform for multiple exchanges to compete in the U.S. fixed income derivatives market.

What is the difference between “one-pot” and “two-pot” margining?
Until NYPC, only “two-pot” margin arrangements between separate cash and derivative clearinghouses existed in the market. In the “two-pot” arrangement, each clearinghouse nets positions internally, and residual risk is then offset between clearinghouses. This “two-pot” methodology generally delivers a low level of capital efficiency. In a “one-pot” methodology, cash and derivative positions are netted at the same time using one risk methodology in order to maximize risk offsets.

Can you have “one-pot” margining between separately regulated clearinghouses? Derivatives clearinghouses and cash clearinghouses generally use different risk methodologies. In order to deliver the efficiencies of “one-pot” margining, a single risk methodology must govern both the cash and futures positions in the single pot. It is for this reason that to deliver the unique efficiencies of “one-pot” margining to the market, NYSE Euronext and DTCC made the decision to build an innovative new clearinghouse. In order to offer this “one-pot” margining to the marketplace, NYPC and FICC received regulatory approval from the CFTC and SEC, respectively, after significant testing of the risk methodology.

What risk methodology is used by NYPC?
NYPC uses historical “VaR” (Value-at-Risk) to manage its risk exposures. The NYPC VaR model looks back over one year of historical data to calculate original margin at the 99% confidence level. This historical VaR methodology is applicable both to cash and derivatives positions, making “one-pot” margining possible.

Which products are cleared by NYPC?
Currently, NYPC provides clearing services for 2-year, 5-year and 10-year U.S. Treasury note and U.S. Treasury bond futures contracts as well as Eurodollar futures contracts traded on NYSE Liffe U.S.

Which cash positions are included in the single pot?
U.S. Treasury and agency securities and repurchase agreements cleared by FICC.

How much capital efficiency can be delivered through “one-pot” margining?
Capital savings depend on each clearing member’s specific portfolio construction and risk characteristics. The extent of the savings depends on the precision of the hedging strategy employed. Greater precision in hedging will reduce the risk of a clearing member’s portfolio and result in greater margin reductions.

How does NYPC decrease systemic risk?
NYPC decreases systemic risk by increasing transparency and reducing uncertainty. In the event of a clearing member default, cash positions and their corresponding futures hedges will be liquidated in tandem as a hedged portfolio in order to minimize risk to the clearinghouses and to lessen possible market disruption.

Who benefits from NYPC?
Currently, “one-pot” margining of cash and futures positions is only available for the proprietary accounts of common members of NYPC and FICC and certain affiliates.

How does NYPC increase transparency for regulators?
NYPC is designed to give regulators real time transparency into interest rate risk positions across both cash and derivatives. This methodology provides early opportunities to identify systemic risks.

How does the centralized location of cash and derivative positions reduce operational risk?
The clearinghouse leverages DTCC’s market-leading capabilities in risk management, settlement, banking and reference data systems. These systems are fully redundant.

How is the company structured?
NYPC is a 50-50 joint venture between the DTCC and NYSE Euronext. Each party has injected initial working capital, and NYSE Euronext has committed an additional $50 million financial guaranty to reinforce the safety and soundness of the NYPC Guaranty Fund.

What technology powers NYPC?
NYPC is powered by NYSE Euronext’s market-leading clearing technology, TRS/CPS, which currently facilitates member position management for the NYSE Liffe market in London and ICE Clear Europe.

How is the new company staffed?
NYPC is fully staffed with a dedicated management team, including a Chief Executive Officer, Chief Operating Officer, Chief Compliance Officer and Counsel and Chief Risk Officer. NYPC has its own Board of Directors that includes three directors from DTCC, three from NYSE Euronext and three independent directors.

What regulatory approvals were required for NYPC?
NYPC has been approved by the CFTC as a Derivatives Clearing Organization, and NYPC and FICC received the necessary regulatory approval from the CFTC and SEC, respectively, to allow for “one-pot” margining of proprietary interest rate futures positions cleared by NYPC and U.S. Treasury and agency securities and repurchase agreements cleared by FICC.