NYX Nyse Euronext

The nascent U.S. futures exchange run by NYSE Euronext (NYX) intends to add options on futures and is eyeing an expansion into swaps, following the anticipated launch of an interest rate derivatives complex in February 2011.

The venture will be supported by a new clearinghouse facility handling trades in cash Treasurys alongside related derivatives contracts, which so far has 15 members signed up, according to NYSE Euronext executives.

"We'll first introduce futures, and then options on futures a few months later," said Tom Callahan, chief executive of NYSE Liffe US, in an interview on the sidelines of an industry event. "First we'll need to establish liquidity in the futures."

The market, launched by the parent of the Big Board in 2008, builds upon the infrastructure of NYSE Euronext's long-running U.K. futures market Liffe and currently offers contracts linked to metals and stock indexes operated by MSCI Inc. (MSCI).

An initial slate of interest-rate futures will see NYSE Liffe US list contracts on 2-, 5-, 10- and 30-year Treasurys as well as an "ultra-long bond" contract and Eurodollar futures. Transactions will be cleared via a new platform called New York Portfolio Clearing, a joint venture between the exchange operator and the Depository Trust & Clearing Corp.

NYPC filed documents with U.S. futures regulators in recent days and intends to do likewise with securities market authorities soon, according to the exchange. The introduction of NYSE Liffe's U.S. rate-futures complex next year depends upon the clearinghouse's earning regulators' approval.

The contracts' launch will set up a three-way contest for the heavily traded market between incumbent CME Group Inc. (CME) and bank-backed upstart ELX Futures LP, which has nibbled at CME's market share since that exchange's July 2009 launch.

An options-on-futures market at NYSE Liffe US would likely operate with a hybrid model enabling screen trading alongside a "call-around" approach, in which big financial institutions call brokers to secure a price for major trades. Once agreed, the trades then are submitted to the exchange, according to Garry Jones, head of NYSE Liffe, the U.K. derivatives exchange.

Clearing capabilities for interest-rate swap transactions could follow six months to a year beyond the U.S. clearing platform launch, adding to a suite of efforts by exchanges to handle more off-exchange derivatives deals. Jones said there is also potential for the exchange company to form its own swap-execution facility, a new designation laid out by the Dodd-Frank Act that is aimed at trading in standardized swaps.

-By Jacob Bunge, Dow Jones Newswires; 312 750 4117; Jacob.bunge@dowjones.com

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