The year began with increased optimism. Markets were stabilising, inflationary pressures were receding, and the usage of the Federal Reserve Repo facility had begun to fall from its 2022 year-end peak of US$2.55 trillion. In addition, there were early signs of movement from the Federal Reserve Repo facility returning to traditional triparty and outright purchases of treasury bills and short notes by money market funds.
Despite these positive signs, uncertainty quickly followed — with higher inflation numbers, increased rate volatility, bank failures, geopolitical risk from the war in Ukraine, heightened tensions with China and US debt ceiling negotiations. Therefore, by the start of Q2, the mood had begun to turn from optimism to concern — with businesses now focused on the efficient utilisation of financial resources.
For our clients in the clearance and collateral management business, this has manifested itself in several ways.
Providing financing solutions across the balance sheet
Against an uncertain backdrop, it is becoming increasingly important to enable financing solutions across as much of a firm’s balance sheet as possible. In that vein, BNY Mellon has plugged a number of new markets and collateral pools into its platform, including China Stock Connect, Malaysia, Indonesia, Italian national bonds held at Euroclear, and an enhanced pledge product in South Korea.
Another dimension that is becoming key is the ability to access and leverage assets. For example, BNY Mellon’s platform is available more than 23 hours a day, and now, following an extensive legal and tax analysis, clients can allocate assets over ‘record date’ into pledge (non-title transfer) transactions — reducing the liquidity impact over these time periods.
Expand options for clients
In addition to the asset side of the equation, the liability side is also key. For example, where and how can assets be efficiently utilised? The priority for global banks is to provide clients with an ever-expanding suite of options to lend cash and securities. This can create additional revenue streams, while reducing counterparty credit risk and increasing operational efficiency.
With this in mind, BNY Mellon has witnessed growth in Fixed Income Clearing Corporation (FICC) Sponsored General Collateral (GC) (FICC Sponsored GC), BNY Mellon is providing the global market infrastructure for United Nations’ Liquidity and Sustainability Facility. Later this year, clients will be able to use the bank’s triparty platform to perform intraday repo, to settle the principal leg of securities lending transactions — enabling the loan leg and the collateral leg to allow for delivery-versus-delivery settlement — and to settle pledge transactions against cash whereby both the start and end legs settle cash-versus-securities simultaneously on our platform. BNY Mellon is also having discussions with its clients and central clearing counterparties (CCPs) globally about providing solutions for their collateral obligations.
Optimise, interoperate and innovate
The need for efficient allocation of collateral is accelerating, with transparency and optimisation spanning the entire asset and liability equation — across asset classes, business lines and venues — fast becoming a must have. To meet these needs, banks are increasingly offering collateral optimisation solutions to clients.
BNY Mellon’s optimiser, for example, provides eligibility screening and directed allocation solutions, uses client-defined inventory data, customised cost models and security reference data, as well as utilising advanced machine-learning techniques and new technologies to provide a more efficient and configurable way of allocating collateral to solve key business problems. For example, it uses mathematical algorithms to provide options for reducing funding costs associated with liquidity coverage ratio (LCR), net stable funding ratio (NSFR) and comprehensive capital analysis and review (CCAR).
Make it quick, easy and simple
With a number of new and evolving topics demanding attention, the focus has turned to enabling clients to do business quickly, easily and effectively. That is why BNY Mellon has continued to invest in its platforms to provide clients with easy access to its capabilities.
These efforts include a redesigned and modernised user interface known as AccessEdge that has recently been enhanced to incorporate client-informed and workflow-oriented updates, as well as in-application and on-demand training videos. Additionally, the design, function and colour palette has been enhanced to make this an inclusive interface aligned with the Americans with Disabilities Act.
BNY Mellon also continues to enhance RULE, its flexible and intelligent self-service application for the creation and management of collateral schedules for activity on its international platform. For example, in Q3 2023, collateral receivers will have the ability to send exclusions quickly across multiple collateral schedules at the same time, as opposed to an individual basis — an enhancement that is expected to be extremely beneficial, particularly in times of market stress.
Operate through uncertainty
During times of crisis, clients, unsurprisingly, turn their attention to reducing the frictions that they experience in their day-to-day collateral use. It is, therefore, critical that banking partners are not only able to weather the challenging market conditions, but they are able to continue to invest in technology, resilience and cybersecurity to meet the existing and emerging challenges faced by clients.
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