JP Morgan has successfully achieved two major tri-party repo milestones – the implementation of three-way trade matching for US Tri-Party Repo dealers and cash investors on 29 August, and the move of the daily unwind to 3:30 pm on 22 August in accordance with the previously-mandated Tri-Party Repo Market Infrastructure Reform Task Force deadline.
22 August was the third and final transition date to gradually move the unwind from early morning to 3:30 p.m., intended by the Task Force to reduce the reliance on intraday credit extended by the two major clearing banks. Since the new 3:30 deadline went into effect on 22 August, J.P. Morgan has seen business-as-usual operations and volumes.
On 29 August three-way trade matching took effect to improve market transparency for cash investors, a key Task Force objective. Approximately 30% of all the tri-party repos booked through JP Morgan on that day utilized its proprietary Repo AccessSM functionality, well in advance of the mandatory October 3 Task Force deadline for three-way trade matching. Repo Access gives cash investors greater control by actively affirming trade instructions. JP Morgan also accepts trade instructions via a variety of different messaging types, SWIFT, or other third-party vendor services.
According to Kelly Mathieson, Worldwide Securities Services Global Custody and Clearance Executive, JP Morgan’s successful implementations were the result of several key investments in technology and operations made over the last 18 months in preparation.
“As a result of our enhancements, our clients were well prepared for these market changes," she says. "Repo Access delivers functionality that made it easy for cash investors and dealers to match trades and meet Monday’s deadline. 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. Our market-leading Auto Substitution product proved essential in giving dealers access to their collateral throughout the trading day and supporting the market liquidity to which they are accustomed.”
JP Morgan’s patent pending Auto Substitution product prioritises the use of eligible securities, substituting them for assets held in tri-party repo loans.
Mathieson adds: “This has been a period of rapid change for our clients. We are pleased to have been able to support them in this time of extensive market transformation, and are proud of the tools we’ve developed to cope with changing market conditions with minimal impact on our clients’ trading behaviour. In our role as co-chair of the Operational Arrangements Working Group, we continue to be deeply involved as an advocate for our clients and market reforms. We are working closely with our market partners as the Task Force sets remaining milestones for 2011 and into 2012.”
Collateral management is a vital risk management tool for institutions seeking to generate additional value from their portfolios while effectively managing their credit risk. JP Morgan’s fixed income clearing and collateral management solution helps clients seamlessly manage their government clearance and tri-party repo financing needs, with automation and technology that integrates these activities to better manage net exposure.