J.P. Morgan Worldwide Securities Services has released a trade matching functionality for the US tri-party repo market.
J.P. Morgans Repo Trade Matching Engine can take trade instructions via a variety of different messaging types from tri-party repo cash lenders. Those lendersincluding asset managers, pensions and government institutionswill be able to view the matching status of their trades through J.P. Morgans proprietary Repo Access platform. Tri-party repo dealers will be able to view the matching status of their trades through J.P. Morgans Broker Dealer Automated System (BDAS).
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 Custodian wrote in its exposition of the tri-party repo market in its Summer Plus 2010 issue.
The Tri-Party Repo Infrastructure Task Force, sponsored by the Federal Reserve Bank of New Yorks Payments Risk Committee, was set up to address that and other weaknesses of the US tri-party system. In May 2010 it set a deadline of August 2011 for the intermediaries to implement three-way trade matching, one of 16 recommendations it made to reform the tri-party system. The task forces full report is available here.
This functionality is a key step towards improving market transparency, a primary area of focus for the task force, says Mark Trivedi, executive director for global custody and clearing at J.P. Morgan. By introducing this functionality early, cash lenders in the J.P. Morgan tri-party program get an advance start on their transition to the new matching process.