BNY Mellon is beefing up its systems and continuing to focus on resiliency as it prepares to become the sole settlement provider in the general-collateral finance (GCF) repo space.
The US custody bank will eventually be the only institution providing post-trade plumbing in the niche yet crucial US funding segment over the next 18-24 months.
It follows JP Morgan’s gradual exit from the business of settling US government securities for most dealers, including GCF repo trades, announced in July last year.
Speaking in New York this week, Brian Ruane, executive vice president at BNY Mellon, said it is a responsibility that the bank isn’t taking lightly.
“We understand the significance of the client migration and recognize the responsibility we have to the wider market,” he told audience members at Finadium’s Annual Industry Conference yesterday.
Around 30 JP Morgan bank and broker-dealer clients are expected to switch to BNY Mellon by the end of 2018, which Ruane described as an “adequate” period of time.
“We have set-up dedicated client teams to ensure a smooth migration and have processes in place to ensure our existing clients aren’t disrupted,” he added.
“The conversion period is underway and we remain fully-focused on resiliency and upgrading our technology to allow us to manage risk and serve this vital component of the Treasury market efficiently and effectively.”
Last year Federal Reserve governor Jerome Powell said the bank will have to "raise the bar" and beef up its capital and liquidity requirements and strengthen its resolution planning given that it will be the only bank filling the role.
Thirty years ago there were six banks providing a full suite of settlement services for US government securities.
BNY Mellon and JP Morgan have been the two dominant providers of these services since the 1990s.
Overnight Treasury GCF transactions have averaged approximately $110 billion over the past year, representing only a small sub-section of the broader Treasury repo market.
JP Morgan is not exiting its tri-party repo service and its continuing to building its custody, collateral management, prime brokerage and treasury services business, which aren’t affected by the change.