Bank of New York Mellon and financial information services company Markit have teamed up to provide security level pricing and other detail on more than $1 trillion worth of tri-party repo collateral. The firms hope to provide more transparency to financial institutions, investors and corporates that use the tri-party repo market, in the hopes that this will allay some of the difficulties that could arise when OTC derivatives are forced to clear through central counterparties.
About 80 percent of the $640 trillion OTC derivatives market can be cleared, according to ISDA. Estimates of the additional collateral that will be needed to establish initial margin at clearinghouses for all the transactions range upwards of $1 trillion. The tripartite repo market is going to be strained when that collateral demand kicks in.
Regulators have also expressed concern about the systemic risks involved in the tripartite repo market, since only two firms – BNY Mellon and JP Morgan Chase – account for the bulk of it. The Markit/BNY initiative, by providing more price and collateral transparency, could reduce systemic risk.
Along with price points, the system will provide data on maturities, haircuts, collateral type and collateral quality. The system is slated to go online in May.