Newedge to Launch Tri-party Repo Platform in U.S.
Newedge, the multi-asset broker and clearer, will expand its Agency Cash Management platform for the tri-party repo market to the US after achieving record volumes over the past month.
Newedge, a unit of French bank Societe Generale, and MTS, the London Stock Exchange’s fixed income business, launched Agency Cash Management in 2012. The electronic auction platform allow firms with excess cash to lend funds in the secured tri-party repo market rather than investing in unsecured money market products. ACM has three auctions each day and firms can choose which collateral to accept.
Over the last month trading volumes in tri-party repo in ACM reached a record €5bn. The volumes are a small part of the multi-trillion euro tri-party repo market but the platform is aimed at non-banks who do not have the resources to manage all the documentation and processes required for these more complex trades.
Angela Osborne, co-head of the agency cash management business at Newedge, told Markets Media that the platform had turned an important corner.
She said: “Buyside clients are looking to the ACM platform to meet upcoming cash and collateral transformation requirements for centrally cleared swaps under Emir. We have been having many more serious conversations over the last three months.”
As regulators encourage more products to be traded on exchanges and centrally cleared, the buyside, pension funds and corporates are having to change the way they manage cash and collateral to meet margin payments. Investors have to source eligible collateral for initial margin payments and local currency cash for the variation margin requirements of their centrally cleared derivatives.
MiFID II also requires proof of best execution in a wider range of products.
Oliver Clark, head of money market and derivatives product at MTS, said in a statement: “Building on the progress the platform has made in Europe, we look forward to exploring the opportunity of rolling it out to US institutional market participants via our US entity.”
Osborne said ACM has regulatory approval from the Securities and Exchange Commission and could launch in the US at the end of this year or early next year.
The platform allows straight-through processing to Euroclear, allowing participants to increase efficiency in their trading operations and meet pre- and post-trade operational and inventory management obligations.
Last year Euroclear agreed a memorandum of understanding with Newedge and MTS to use for tri-party repo transactions conducted on the ACM platform in Europe. Euroclear’s global collateral highway was launched in 2012 to source and mobilise collateral across borders.
Chris Smith, head of post trade at Trax, the trade matching and reporting services technology provider, told Markets Media in July that the confirmation process in the repo market is still very manual, with less than 10% of repo trades being matched electronically. In contrast in equities more than 90% of trades are matched electronically on trade date while in fixed income this falls to 50%.
“We have seen a big demand for electronic repo confirmations and these are being tested by some of our US customers,” Smith added. “As repo volumes rise manual processes and not practical and new participants are entering the market who want electronic matching.”
Phase 5 of the uncleared margin rules (UMR) took effect from September 2021.
Phase 5 of the uncleared margin rules came into effect on 1 September.
Triparty repos can be executed across U.S. Treasury securities to central clearing.
Traders on EQONEX will be able to use US dollars, USD Coin and Bitcoin as margin for derivatives trading.
DTCC’s Margin Transit Utility simplifies the transfer of collateral.