December 08, 2015

BNY Mellon offers access to Markit ETF collateral lists

Lists are designed to enhance efficiency and transparency around collateral management for market participants


BNY Mellon has incorporated exchange traded fund (ETF) collateral lists within its collateral management offering to simplify the process of implementing ETF’s as a collateral type.

Sourced from global financial information services provider Markit, the two ETF collateral lists – one covering equities, the other fixed income – are designed to help market participants to identify which funds they can accept or post as collateral. The list or lists mean clients can accept multiple ETFs in one batch without the need to individually approve each one individually.

The lists are derived using a seven-tier filter to more than 6,000 global exchange traded products (ETPs). The filters encompass geographic exposure, asset class, benchmark, leverage ratio, holding type, assets under management, and tracking difference.

The acceptance of ETFs as a valid collateral type has lagged behind both equity and fixed income securities, in large part due to collateral providers and receivers having to manually select individual ETFs.

Brian Staunton, managing director, collateral management services at BNY Mellon Markets Group, said: “By utilizing one or both of the Markit lists, collateral receivers can more quickly confirm acceptable  ETFs, and will benefit from a faster and simpler implementation, similar to the process by which they can accept equity indices such as the FTSE 100 or S&P 500. Conversely, ETF holders will now have a more efficient way to use those ETFs as collateral. Given the global ETF market currently stands at close to $3 trillion, we are confident it will become a popular asset class for both collateral providers and receivers.

Pierre Khemdoudi, managing director of securities finance at Markit, said: “A lack of standardized criteria, market opacity and the onerous management process for risk departments means that many market participants have historically not accepted ETFs as collateral. Our lists aim to bring transparency and simplicity to the market, facilitating access to ETFs for use as collateral.”