MTS, Europe's premier facilitator for the European fixed income trading market, has launched its Agency Cash Management (ACM) platform, a new electronic auction facility for the tri-party repo market.
The platform, which has already registered its first trades, has been launched in association with Newedge, a global leader in multi-asset brokerage.
The ACM platform enables investors to enter into secured money market investments using the tri-party repo mechanism*. It has been launched in response to increasing demand from institutions for an innovative solution to the cash management challenges currently being faced by both the buy- and sell-side. The platform uses the same technology that facilitates the MTS fixed income trading market, combining secure investment opportunities with the high levels of transparency offered by electronic trading.
Under a repurchase agreement, also known as a repo or sale and repurchase agreement, investors lend cash for a short period of time to another party. Financial securities are used as collateral for the loan, together with an agreement for the seller to buy back the security at a pre-agreed rate of interest and an agreed term.
The ACM platform creates an alternative to the traditional suite of unsecured money market products, and offers access to low-risk secured investment opportunities for buy-side institutions such as corporates, asset managers, bank treasurers, sovereign wealth funds, pension funds, securities lenders, insurance companies, banks and hedge funds.
By bringing a new pool of cash providers to the market, the platform will also benefit banks facing continued pressure to diversify their sources of funding in the face of new regulations planned under Basel III.
The ACM platform allows investors to select acceptable counterparties, rating of collateral, currencies and trade duration. Collateral is held in a segregated account in the investor's name at an established tri-party agent, typically a highly-rated custodian bank, and is subject to transfer of ownership that can be sold on demand if the counterparty defaults.
Oliver Clark, Money Market Product Manager at MTS, said: "The successful launch of our new Agency Cash Management platform addresses the demand for an innovative cash management solution for both banks and buy-side investors. ACM introduces the tri-party repo mechanism to a new group of participants in the form of corporates, hedge funds and securities lenders in a competitive, electronic auction platform. The cash providers benefit from the security of tri-party repo in place of unsecured money market products and their counterparty banks with an alternative source of funding."
Angela Osborne and Ulf Bacher, Co-Heads of the Agency Cash Management business at Newedge, added: "The new ACM platform has opened one of the biggest money market products to a new audience that will ensure best execution for cash investments via our auction methodology.
"Newedge is delighted to be working with MTS on this initiative. Our partnership brings together market experience and best-in-class technology to offer the benefits of tri-party repo to the buy-side whilst delivering new pools of liquidity to the sell-side."
The ACM operates as a Multilateral Trading Facility (as defined under MiFID regulation and FSA supervision) by EuroMTS Limited.
* Repo and tri-party repo
A repurchase agreement, also known as a repo or sale and repurchase agreement, allows an investor to borrow cash for a short period of time from another party using financial securities as collateral for the loan, together with an agreement for the seller to buy back the security at a pre-agreed rate of interest and an agreed term. A repo can be conducted via the tri-party repo mechanism in which the settlement process is administered by an independent third party known as a tri-party agent. The agent, usually a highly-rated custodian bank, ensures both the cash and collateral are exchanged within a legal framework that recognises full transfer of title.