BNY Mellon has introduced a series of new services to revamp the infrastructure, operations and systems supporting its tri-party repo clients.
The custodian has launched an auto cash substitution capability for both Fed and DTCC securities, which provides dealers with easy access to the securities they need for daily trading. With Auto Collateral Request and Auto Collateral Exchange two new features on the company’s technology platform BNY Mellon retrieves only those securities required for the settlement of trades. Since being introduced, BNY Mellon says the processes have reduced intraday credit exposures by more than 10%.
The announcement by BNY Mellon follows that of J.P. Morgan, which last week launched US tri-party trade matching. Trade matching and auto cash substitution are recommendations of the Tri-Party Repo Infrastructure Task Force, sponsored by the Federal Reserve Bank of New Yorks Payments Risk Committee, which was set up to address the weaknesses of the US tri-party system. The full report of the task force is available here.
“We are aggressively working to implement all of our new capabilities while continuing to fully support our clients’ operational, technology and funding needs,” says James Malgieri, CEO of BNY Mellon Broker-Dealer Services. “These actions are designed to fully satisfy the task force’s objectives and we firmly believe they will lead to greater transparency and confidence in the tri-party market for all market participants, including dealers, investors and regulators.”
In tri-party repo, a clearing agent or custodian (J.P. Morgan or 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. Because the American tri-party market has traditionally started afresh every evening, an event of default by a broker-dealer meant that the clearing banks would have to take the entire tri-party portfolio of the failed firm onto its balance sheet, Global Custodianwrote in its exposition of the tri-party repo market in its Summer Plus 2010 issue.
(CG)