BNY Mellon expands bilateral margining
03 June 2013 New York
Image: Shutterstock
BNY Mellon has ramped up its DM Edge product in the wake of recommendations from the Federal Reserve bank.
The bank has expanded its bilateral margining capabilities to include forward-settling mortgage-backed securities (MBS), as recommended to help reduce counterparty and systemic risk by the Treasury Market Practices Group (TMPG) sponsored by the Federal Reserve Bank of New York.
TMPG recommends two-way variation margin, exchanged regularly, because this type of trade settlement is often scheduled into the future at a date to be announced (TBA) with a 48-hour trade settlement window.
鈥淭he TBA market serves a critical function by allowing mortgage lenders to hedge risk and fund their loan origination pipelines,鈥� said a release from BNY Mellon.
It added that the TBA market facilitates the forward trading of mortgage-backed securities with defined settlement dates for each month in the future, and that the liquidity of this market also supports efficiencies, with cost savings for lenders that are passed on to borrowers in the form of lower rates.
鈥淭his enhancement to DM Edge helps clients manage their counterparty exposure,鈥� said Nadine Chakar, head of product and strategy for BNY Mellon鈥檚 global collateral services business. "Through DM Edge, MBS trading counterparties can reduce the credit risk inherent in forward transactions by exchanging collateral, or margin, as protection against loss in the event of default."
鈥淯nmargined, bilateral agency MBS trades can pose counterparty risk to market participants, which is why TMPG recommends that exposures from forward-settling transactions, inclusive of agency MBS transactions, be margined beginning in early June 2013 and substantially completed by the end of the year,鈥� said Chakar.
Given its volume and liquidity, the TBA market is the most important secondary market for mortgage loans and represents capital flow from a wide range of investors, said the bank.
The bank has expanded its bilateral margining capabilities to include forward-settling mortgage-backed securities (MBS), as recommended to help reduce counterparty and systemic risk by the Treasury Market Practices Group (TMPG) sponsored by the Federal Reserve Bank of New York.
TMPG recommends two-way variation margin, exchanged regularly, because this type of trade settlement is often scheduled into the future at a date to be announced (TBA) with a 48-hour trade settlement window.
鈥淭he TBA market serves a critical function by allowing mortgage lenders to hedge risk and fund their loan origination pipelines,鈥� said a release from BNY Mellon.
It added that the TBA market facilitates the forward trading of mortgage-backed securities with defined settlement dates for each month in the future, and that the liquidity of this market also supports efficiencies, with cost savings for lenders that are passed on to borrowers in the form of lower rates.
鈥淭his enhancement to DM Edge helps clients manage their counterparty exposure,鈥� said Nadine Chakar, head of product and strategy for BNY Mellon鈥檚 global collateral services business. "Through DM Edge, MBS trading counterparties can reduce the credit risk inherent in forward transactions by exchanging collateral, or margin, as protection against loss in the event of default."
鈥淯nmargined, bilateral agency MBS trades can pose counterparty risk to market participants, which is why TMPG recommends that exposures from forward-settling transactions, inclusive of agency MBS transactions, be margined beginning in early June 2013 and substantially completed by the end of the year,鈥� said Chakar.
Given its volume and liquidity, the TBA market is the most important secondary market for mortgage loans and represents capital flow from a wide range of investors, said the bank.
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to 麻豆传媒 Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to 麻豆传媒 Finance Times
