The Bank of New York Mellon Corporation : Bank of New York Forms New Unit to Grab More Collateral Business
06/27/2012| 04:47pm US/Eastern
--Bank of New York Mellon centralizes collateral-management functions in new unit
--Move is in response to increasing regulatory requirements for collateral
--Size of collateral market may grow by $2 trillion - TABB Group
By Christian Berthelsen
As new regulatory requirements force traders to post more collateral to back their market positions, Bank of New York Mellon Corp. (BK) is reorganizing business units to capture what it expects to be a growing market.
The bank, which specializes in custodial services for institutional clients, is launching a dedicated collateral-management division drawn from existing but disparate services throughout the bank, to grab a larger slice of the assets backing trades that will have be held, moved and valued for the world's traders.
Trading collateral may rise by as much as $2 trillion, according to a recent report by TABB Group, a capital-markets consultancy. Traders in some markets haven't had to post any collateral before.
New rules under the Dodd-Frank financial-reform regulation and the Basel III capital requirements will bring public-trade clearing and reporting to many parts of the derivatives markets that didn't have them before, such as rate and credit-default swaps and, as a result, the clearinghouses handling those trades are going to require increased collateral posting.
"It's just the view of the marketplace in that we're all trying to do a better job of managing our counter-party risk and market risk, and collateral is how you do that," said Kurt Woetzel, Bank of New York's head of global operations and technology, who will head the new unit.
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