Fed wants to invite more to the triparty
27 October 2016 New York
Image: Shutterstock
J.P. Morgan may have to delay its departure from the US government securities clearing market if the Federal Reserve deems BNY Mellon鈥檚 subsequent monopoly to be a risk to market stability.
In a speech at the Evolving Structure of the US Treasury Market: Second Annual Conference, Federal Reserve governor Jerome Powell stated: 鈥淛.P. Morgan Chase has said that it recognises the need for, and its own interest in, ensuring that its exit does not disrupt the market.鈥�
鈥淚ndeed, J.P. Morgan Chase will itself need to rely on these services going forward. The timeline set for a gradual transition over the next two years should be sufficient to avoid significant dislocations; however, if unexpected complications arise, that timeline may need to be adjusted.鈥�
J.P. Morgan confirmed in the summer that it is winding down its government securities settlement services with a view to exiting the business by the end of 2017.
Powell also used his speech to reassure all market participants that the Fed acknowledged the importance of maintaining the functionality of these markets and that BNY Mellon, as the soon-to-be exclusive triparty clearinghouse, would be under increased scrutiny as a result.
Powell explained: 鈥淲e have long recognised that any disruptions to these critical market services could have serious consequences for financial stability, and have calibrated our supervisory expectations accordingly.鈥�
鈥淭o ensure financial stability, we expect the provision of US government securities settlement services to be robust in nearly all contingencies.鈥�
He continued: 鈥淎s BNY Mellon becomes the sole provider, we will raise our expectations even higher. The bank has anticipated and welcomed this higher bar.鈥�
Powell concluded his speech by hinting that BNY Mellon鈥檚 status as the only provider of clearing services in this market may not be a long-term feature.
鈥淭he industry as a whole should play an important role in shaping the evolution of the settlement infrastructure. Other firms may seek to enter this market.鈥�
鈥淭here have also been discussions over time of a settlement utility, and the Depository Trust & Clearing Corporation is currently considering a new variant of such a model. Our focus is on the quality of the services offered鈥攖heir safety, resilience, and support of the market鈥攁nd not on the particular mechanism for offering them.鈥�
In a speech at the Evolving Structure of the US Treasury Market: Second Annual Conference, Federal Reserve governor Jerome Powell stated: 鈥淛.P. Morgan Chase has said that it recognises the need for, and its own interest in, ensuring that its exit does not disrupt the market.鈥�
鈥淚ndeed, J.P. Morgan Chase will itself need to rely on these services going forward. The timeline set for a gradual transition over the next two years should be sufficient to avoid significant dislocations; however, if unexpected complications arise, that timeline may need to be adjusted.鈥�
J.P. Morgan confirmed in the summer that it is winding down its government securities settlement services with a view to exiting the business by the end of 2017.
Powell also used his speech to reassure all market participants that the Fed acknowledged the importance of maintaining the functionality of these markets and that BNY Mellon, as the soon-to-be exclusive triparty clearinghouse, would be under increased scrutiny as a result.
Powell explained: 鈥淲e have long recognised that any disruptions to these critical market services could have serious consequences for financial stability, and have calibrated our supervisory expectations accordingly.鈥�
鈥淭o ensure financial stability, we expect the provision of US government securities settlement services to be robust in nearly all contingencies.鈥�
He continued: 鈥淎s BNY Mellon becomes the sole provider, we will raise our expectations even higher. The bank has anticipated and welcomed this higher bar.鈥�
Powell concluded his speech by hinting that BNY Mellon鈥檚 status as the only provider of clearing services in this market may not be a long-term feature.
鈥淭he industry as a whole should play an important role in shaping the evolution of the settlement infrastructure. Other firms may seek to enter this market.鈥�
鈥淭here have also been discussions over time of a settlement utility, and the Depository Trust & Clearing Corporation is currently considering a new variant of such a model. Our focus is on the quality of the services offered鈥攖heir safety, resilience, and support of the market鈥攁nd not on the particular mechanism for offering them.鈥�
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