J.P. Morgan has implemented three-way trade matching for US Tri-Party Repo dealers and cash investors and has moved the daily unwind to 3:30 p.m., both mandates of the Tri-Party Repo Market Infrastructure Reform Task Force.
The unwind was moved from early morning to 3:30 p.m. beginning August 22, a move intended to reduce the reliance on intraday credit extended by the two major clearing banks (BNY Mellon is the other). J.P. Morgan says it has seen business-as-usual operations and volumes since the time change.
When the daily unwind moved to 3:30 last week, we were able to cut our normal processing time for the unwind in half, returning cash to investors while allowing dealers to promptly reallocate their collateral, says Kelly Mathieson, Worldwide Securities Services global custody and clearance executive. Approximately 30% of J.P. Morgans tri-party repo clients use Repo Access, its proprietary tool, although the firm also accepts trade instructions via a variety of different messaging types, SWIFT or other third-party vendor services.
Three-way trade matching, implemented August 29, is intended to improve market transparency for cash investors.
In tri-party repo, a clearing agent or custodian (J.P. Morgan and BNY Mellon in the US) acts as an intermediary between two parties in a repo trade. By 2008, when the tri-party business peaked, J.P. Morgan and BNY Mellon were responsible for underwriting individual counterparty credit risks ranging from $100 billion to $400 billion every trading day. Global Custodian featured the US tri-party repo infrastructure, and the weaknesses in the system, in its Summer Plus 2010 issue.
BNY Mellon and J.P. Morgan have been working in the past two years to overhaul the tri-party repo infrastructure in the US in line with the task forces proposal. See here, here and here for launches by the custodians of other task force mandates.
This has been a period of rapid change for our clients, Mathieson says. We are pleased to have been able to support them in this time of extensive market transformation, and are proud of the tools weve developed to cope with changing market conditions with minimal impact on our clients trading behavior.
The Tri-Party Repo Infrastructure Task Force, sponsored by the Federal Reserve Bank of New Yorks Payments Risk Committee, was set up to address weaknesses of the US tri-party system. Click here for the full report.
(CG)