June 03, 2013

BNY Mellon Enhances DM Edge® Bilateral Margining Service to Help Counterparties Manage Forward-settling MBS Securities Exposures


Enhancement offers market practice recommended by Treasury Market Practices Group

NEW YORK, June 3, 2013 — BNY Mellon, the global leader in investment management and investment services, has enhanced its DM Edge® product by expanding its bilateral margining capabilities to include forward-settling mortgage-backed securities (MBS), as recommended to help reduce counterparty and systemic risk by the Treasury Market Practices Group (TMPG) sponsored by the Federal Reserve Bank of New York.

TMPG recommends two-way variation margin, exchanged regularly, because this type of trade settlement is often scheduled into the future at a date to be announced or "TBA" with a 48-hour trade settlement window. The TBA market serves a critical function by allowing mortgage lenders to hedge risk and fund their loan origination pipelines. The TBA market facilitates the forward trading of mortgage-backed securities with defined settlement dates for each month in the future. The liquidity of this market also supports efficiencies, with cost savings for lenders that are passed on to borrowers in the form of lower rates.

"This enhancement to DM Edge® helps clients manage their counterparty exposure," said Nadine Chakar, head of product and strategy for BNY Mellon's Global Collateral Services business. Through DM Edge®, MBS trading counterparties can reduce the credit risk inherent in forward transactions by exchanging collateral, or margin, as protection against loss in the event of default.

"Unmargined, bilateral agency MBS trades can pose counterparty risk to market participants, which is why TMPG recommends that exposures from forward-settling transactions, inclusive of agency MBS transactions, be margined beginning in early June 2013 and substantially completed by the end of the year," said Chakar.

Given its volume and liquidity, the TBA market is the most important secondary market for mortgage loans and represents capital flow from a wide range of investors.

Global Collateral Services offers a comprehensive suite of services to help BNY Mellon's clients address their collateral, liquidity and securities financing needs. As they face evolving global regulations and rapidly changing market requirements, clients can leverage BNY Mellon's products and services to better manage counterparty and market risk in their collateral transactions, engage in more investment opportunities to help maximize their investment returns and access new financing alternatives. BNY Mellon currently services $2 trillion in global collateral (including tri-party repo collateral worldwide) and approximately $100 billion in assets through its Liquidity DIRECT(SM) investment portal, and operates one of the industry's largest securities lending programs, with $3 trillion in lendable assets.

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 36 countries and more than 100 markets. As of March 31, 2013, BNY Mellon had $26.3 trillion in assets under custody and/or administration, and $1.4 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on http://www.bnymellon.com/, or follow us on Twitter @BNYMellon.