Amid new regulations impacting structured products continue to unfold, BNY Mellon has just launched a new product that will help clients easily identify, manage, assess and forecast their global collateral holdings, enabling them to use their collateral as efficiently as possible.
BNY Mellon’s new Collateral Aggregator product, launched September 26, is designed to provide clients with a consolidated and transparent view through a single portal of all their available collateral, and all their collateral positions and related activity, held with the custodian.
Corporate end-users are mostly exempt from clearing and posting the related collateral, although some companies that are highly active in the swaps market had to start clearing swaps earlier this year. Most, however, are taking a wait-and-see approach before implementing systems to better view their available collateral and understand their collateral needs.
“So far, most corporates who haven’t already been asked to post collateral, or who have asked banks to post collateral because they have stronger credit than the bank, don’t seem to be concerned about what may be coming around the corner,” said Jiro Okochi, CEO and cofounder of Reval. “If corporates are going to be posting more [collateral], then it makes sense to aggregate.”
Some corporates may ultimately opt for more standardized cleared swaps, given their expected lower costs and risk. In addition, proposals to institute margin requirements impacting corporates remain outstanding in the US and Europe, and US regulators appear likely to require both initial and variation margin for uncleared swaps, at least above a certain threshold. That means instituting ISDA agreements and/or credit support annexes (CSAs), new to many corporate swap users.
“We feel there is a big market for corporates, for example, because a lot of these collateral rules will be new to them, and a provider like us can help them navigate through this new environment,” said James Malgieri, EVP and head of service delivery and regional management for BNY Mellon’s Global Collateral Services business. By 2014 the BNY Mellon intends to establish feeds from clients’ banks and other custodians and, with the clients’ permission, aggregate those assets so they have a single view.
“The goal is do this in real-time as the collateral movements are happening. Now it’s prior day close,” Mr. Malgieri said.
As of June 30, BNY Mellon had $26.2 trillion in assets under custody and/or administration, and $1.4 trillion in assets under management, and it operates in 35 countries and 100 markets, touching a significant portion of global financial assets. Mr. Malgieri noted that the bank already offers a significant number of tools to help buy-side clients to segregate, optimize and otherwise manage their collateral.
The new aggregation service was launched as a part of BNY Mellon’s new Collateral Universe suite of collateral-related product and services, most of which have been available individually for some time. An example Mr. Malgieri pointed to was the custodian’s Derivatives Margin Management tool, which is used by 20 or so mostly buy-side institutions, mostly pension funds, to manage their ISDA agreements and CSAs.
“Before you get to what collateral you’re going to post, you have to determine how much and under what parameters, and that’s determined by the CSAs,” Mr. Malgieri said.
In June, J.P. Morgan announced enhancements to its program to facilitate clients’ ability to manage collateral, around the same time that Euroclear and the Depository Trust & Clearing Corp. announced an agreement to integrate their efforts to provide similar services.