03 August 2015

Repo settlement delays expose market fragility

31 January 2013  |  3718 views  |  1 New York Skyline 1

Operational issues in the $1.87 trillion tri-party repurchase agreement market delayed settlement of some trades on Tuesday by several hours, Reuters reports.

The New York Fed was forced to extend the opening hours of its Fedwire Securities Service by two hours until 5pm to handle the backlog, reports the newswire, citing traders in the market.

The Federal Reserve has recently intensified oversight of the market in an effort to eliminate intraday credit exposures at JPMorgan Chase and BNY Mellon, the two large custodian banks that handle the settlement of loans and manage collateral between lenders and borrowers in the market.

JPMorgan Chase has recently stopped the daily unwind of non-maturing term repo trades, while BNY Mellon has been rolling out operational and technology changes to eliminate the credit risk against privately-issued, nongovernment securities that settle through the Depository Trust Company. As of Thursday, BNY Mellon dealers will be required to prefund all maturing tri-party repo transactions involving DTC-sourced collateral prior to settlement.

Both clearers will be implementing further changes in their settlement procedures over the next two years in an effort to counteract structural weaknesses in the market that were exposed during the 2008 credit crunch.

The Fed has declined to comment on today's problems, which underline the continued fragility of the market and add urgency to the central bank's reform agenda.

Comments: (1)

A Finextra member | 01 February, 2013, 18:32

This is the tip of the iceberg and a example of how dangerous the market is with liquidity tight in collateral and cash.The major banks must find a netting solution between themselves

Be the first to give this comment the thumbs up 0 thumb ups! (Log in to thumb up)
Comment on this story (membership required)
Log in to receive notifications when someone posts a comment

Finextra news in your inbox

For Finextra's free daily newsletter, breaking news flashes and weekly jobs board, sign up now.

Related blogs

Create a blog about this story (membership required)

Related stories

15 January, 2013
10 August, 2011
08 September, 2010
11 June, 2010
23 April, 2008
23 April, 2008
17 April, 2008

Related company news

 

Related company information

JPMorgan Chase
Your browser is unable to support Flash files.

Top topics

Most viewed Most shared
ING Bank introduces voice-activated mobile...
10276 views comments | 26 tweets | 31 linkedin
Will Uber be the Uber of banking?
8371 views comments | 40 tweets | 31 linkedin
Payments and capital markets sectors domin...
6693 views comments | 17 tweets | 18 linkedin
Bank branches key to fending off digital c...
6297 views 11 comments | 21 tweets | 29 linkedin
MasterCard to connect Europe to Samsung Pa...
6116 views comments | 20 tweets | 14 linkedin

Featured job

to $120K base, double OTE, benefits
New York City, NY or Boston, MA (USA)

Find your next job