JP Morgan Worldwide Securities Services’ (WSS) tri-party offering for Chicago Mercantile Exchange Inc’s (CME) IEF4 program will begin supporting corporate bonds.
The change comes in conjunction with CME Clearing’s decision to expand eligible collateral to include corporate bonds and extends the capabilities of JP Morgan’s longstanding supporting of CME Clearing’s IEF4 program.
The expanded eligibility will provide Futures Commission Merchants (FCMs) greater flexibility in meeting their collateral requirements by being able to post high grade securities, particularly critical as regulations related to Dodd-Frank are enforced.
IEF4 is a specialised collateral program that permits clearing firms to pledge collateral that CME Clearing does not accept directly into an approved tri-party account – this now includes corporate bonds. JP Morgan manages the collateral as the tri-party agent to the transaction. The collateral may be substituted during the business day as long as the ‘deal amount’ is maintained.
As custodian and tri-party agent to these transactions, JP Morgan prices and administers securities processing services. As an additional change to the IEF4 program, sequestered accounts will also be eligible for the IEF4 program.
“We are delighted about the opportunity to deepen our relationship with CME and provide additional support to their clients as demands on collateral increase,” says Jason Paltrowitz, Americas market executive for Banks and Broker Dealers at JP Morgan Worldwide Securities Services. “This expansion of our work with CME reflects just one way in which collateral agency services can readily adapt to evolving market needs, and support clients facing the pressures of new regulation.”
"Expanding our collateral program allows us to continue to meet the needs of our very diverse customer base, particularly as we approach the new regulatory realities that require more collateral from market participants," says Kim Taylor, President, CME Clearing. "We have worked closely with both buy-side and sell-side market participants to develop enhancements that reflect prudent risk management as well as provide more flexibility as they transition to OTC clearing."
