NYX Nyse Euronext

NYSE Euronext (NYX) said Tuesday that Walter Lukken, the former head of the Commodity Futures Trading Commission, will run the new clearing venture, spearheading its expansion in the U.S. derivatives sector.

Lukken joined the exchange operator last July and will become chief executive of its New York Portfolio Clearing business on May 1 as it gears up for launch in the third quarter.

NYPC requires approval from the CFTC and other agencies. While Lukken is barred from interacting with his former employer before July, his appointment adds political clout at a time of regulatory flux in the industry.

Lawmakers on both sides of the Atlantic are shaping new laws likely to require more off-exchange products to be routed through clearinghouses such as NYPC.

"One of the chief trends in the financial-services sector is clearing," Lukken said in an interview. "One of the lessons from the financial crisis was that the exchange model and clearinghouses worked very well."

Lukken's expertise in cross-border regulatory issues could come into play as the clearing platform weighs future expansion into the U.K., where NYSE's Liffe exchange dominates trade in interest rate derivatives.

Lukken served as Republican acting chairman of the CFTC from mid-2007 until early 2009, guided the U.S. futures regulator through the height of the financial crisis, and has been a proponent of shifting over-the-counter derivatives trading to exchange-backed platforms.

NYSE Euronext is developing NYPC, a joint venture with the Depository Trust & Clearing Corp., as it prepares to challenge the dominance of Chicago-based CME Group Inc. (CME) in futures products tied to U.S. interest rates.

The venture is targeted for launch in the third quarter, and will clear cash Treasury transactions alongside related futures contracts. The combination aims to make it cheaper for customers who post collateral against trades in both markets.

The second phase of NYPC's development could include clearing interest-rate swap transactions, Lukken said, as well as clearing U.K. government issues and related derivatives under the same roof.

"One of the key regulatory and policy issues going forward is how clearinghouses will work cross-border," he said. If NYPC's model works in the U.S., Lukken said, the international opportunities "are pretty open."

Lukken joined NYSE Euronext last summer in Washington as senior vice president in its general counsel's office, and is on the board of the NYSE Liffe derivatives unit.

He began his tenure at the CFTC as a commissioner in August 2002, having previously served as counsel to the Senate Agricultural Committee, which oversees the CFTC.

His role as chief executive of NYPC marks his first leadership post in the private sector and comes as NYSE Euronext CEO Duncan Niederauer makes derivatives as the centerpiece of the exchange operator's growth.

Futures and options trading has become a focus as NYSE Euronext's core stock-trading business has been chipped away by a host of small, electronic platforms in the U.S. and Europe, while more shares are traded off-exchange.

Under terms of his departure from the CFTC, Lukken is barred from representing NYPC there until next July. He said NYSE Euronext informed the agency's ethics counsel of the appointment.

The NYPC venture requires approval from the CFTC, while the DTCC needs certain rule changes approved by the Securities and Exchange Commission for its role. Lukken said the facility is also seeking informal support from the New York Federal Reserve.

-By Jacob Bunge, Dow Jones Newswires; 312-750-4117

(Tess Stynes contributed to this article.)

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