JPMorgan to stop settling
government securities for dealers
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[July 23, 2016]
NEW YORK (Reuters) - JPMorgan Chase
& Co <JPM.N> will stop settling U.S. government securities transactions
for most dealers by the end of next year as it streamlines its business,
the bank said on Friday.
The change would leave BNY Mellon Corp <BK.N> as the only clearing bank
for such transactions between dealers and investors.
In the first six months of 2016, an average of $504 billion of U.S.
Treasuries changed hands per day, down slightly from a daily average of
$507 billion for the same year-earlier period, according to data from
the Securities Industry and Financial Markets Association.
The $1.6 trillion tri-party repo market, involving broker-dealers,
investors and clearing banks, is a key source of short-term borrowing
for Wall Street firms which pledge U.S. Treasuries and other securities
as collateral to fund their trades.
"After a careful review, we have determined that it is a non-core
service, particularly as we simplify our business and continue to
prioritize strategic growth opportunities," a JPMorgan spokesperson said
in an email.
JPMorgan will end its Government Securities Settlement Services by the
end of 2017, the spokesperson said.
BNY Mellon currently clears 80 percent to 85 percent of tri-party repos,
while JPMorgan clears the rest, according to analysts.
BNY Mellon responded in a statement that it was committed to settlements
The change would affect the settlement of so-called general collateral
finance repos for 30 dealers and broker-dealers, Bloomberg first
reported on Friday, citing Michael Albanese, the Wall Street bank's
managing director of investor services.
JPMorgan's decision on its government settlement business came after its
customers could no longer conduct repo trades with BNY Mellon clients
and vice versa on July 15 to comply with a new rule from the Securities
and Exchange Commission.
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People walk by the JP Morgan & Chase Co. building in New York in an
October 24, 2013 file photo. REUTERS/Eric Thayer/Files
This has essentially split the tri-party repo market into two.
The SEC rule change, which is part of a broader reform of the tri-party repo
market, is aimed at reducing reliance on intraday credit from clearing banks for
“Treasury has been in regular communication with J.P. Morgan about its plans
regarding its Government Securities Settlement services. We are fully confident
that Treasury securities will continue to trade and settle in the usual manner,"
Treasury spokesman Rob Runyan said in a statement.
"We are coordinating with J.P. Morgan and the Federal Reserve to manage a smooth
transition that minimizes any potential impact," he added.
(Reporting by Jonathan Spicer and Richard Leong; Additional reporting by
Gertrude Chavez-Dreyfuss; Editing by Richard Chang and James Dalgleish)
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