J.P. Morgan has merged several of its investment bank derivatives and clearing teams with similar services provided by its Worldwide Securities Services (WSS) business, part of its Treasury and Securities Services into a new business called Agency Clearing, Collateral and Execution. The newly appointed head of that business, Emily Portney (previously head of Futures and Options in J.P. Morgan’s investment banking unit), and Dinkar Jetley, CEO of J.P. Morgan WSS, talk to Global Custodian about the rationale behind the move.
What synergies will the investment banking and WSS businesses leverage?
EP: The venture is about bringing together the clearing, collateral management and agency execution capabilities into one unit. Right now we have leadership positions in all of these areas but theyre all housed in different areas of the firm: some within IB and some within WSS. As the regulatory environment evolves, clients are going to need a more holistic service offering across collateral management, clearing and execution, irrespective of whether its a futures contract, a swap or a security. Right now we offer all of those different pieces but we do it through different parts of the firm. By bringing all of those things altogether under one management structure we will be able to provide seamless and integrated solutions to our clients.
Who will be the users of this new integrated service and how will they benefit?
EP: Both buyside and sellside companies that have traditionally entered into swaps have not had to clear them nor post margin on a CCP. Suddenly and especially with product definitions from the CFTC and the SEC this week these customers will face new margin requirements and collateral management needs. They need a partner to help them think about what collateral they need, how they optimize the use of that collateral and how they track that collateral. How do they go about transforming collateral into eligible collateral? This may also require some financing services. J.P. Morgan is uniquely positioned to satisfy those requirements by helping them understand how all of the pieces come together.
How does that differ from what is currently being provided by the two entities?
EP: The financing services that are currently being provided by the investment bank are part of a related but separate function from this new venture. Our ability to execute and clear the futures and options and OTC swaps that have been mandated to be centrally cleared sits in the investment bank. It just so happens that the collateral management operational capabilities we provide to clients sits in WSS as does any clearing of securities not related to prime brokerage. What were attempting to do is bring all of these capabilities together rather than look at it by underlying asset class or product. In addition to clearing and collateral management, these same clients might need custodial, agency execution and financing services. If I am an institutional customer who might be active across many different asset classes or different products and I need to be able to clear those products, I need to be able to manage the collateral associated with those products. I need to be able to potentially execute on various different venues and I might need trading services too.
DJ: These are all agency businesses that we are pulling together on the execution, clearing and collateral side. This is distinct from our market making activities, which will sit in a different part of the investment bank. The client base will cut across the spectrum and include pension funds, insurance companies, asset managers, corporates, sovereign wealth funds, CCPs, the sell side and the broker dealers. In a world where innovation will be spawned by regulatory reform in the OTC space with more central clearing, it behooves us to put all of our extensive capabilities under a common leadership to connect the dots in developing compelling client solutions e.g. sourcing and transforming of collateral, managing the middle/back office infrastructure for clearing, valuations and managing collateral requirements, etc. We are being responsive to clients who are asking for holistic solutions that cut across the execution, clearing, collateral and custody spectrum.
– Janet Du Chenne