Collateral manager of the year: BNY Mellon

Asia Risk Awards 2022

Natalie Wallder, BNY Mellon
Natalie Wallder, BNY Mellon

BNY Mellon’s focus on global collateral mobility and interoperability has once again stood the firm in good stead this year, with geopolitical tensions continuing to reinforce the importance of being able to shift assets around efficiently.

“Clients want the flexibility to optimise their portfolio across a broad range of metrics in a central funding model, and to minimise costs by using the right asset to support the right obligation, in the right legal entity at the right time,” says Grieg Ramsay, product manager, clearance and collateral management. “This includes greater integration and interoperability between settlement locations, which ultimately leads to increased velocity of collateral.”

BNY Mellon’s success in Asia this year owes a lot to the work the collateral manager has done around the world in order to promote interoperability, particularly in terms of integrating its US and global platforms.

“[This allows] clients to seamlessly move assets across these [markets] to be used for their obligations,” says Ramsay. “The infrastructure created to support this is one of our improvements as part of a multiyear focus on system resiliency, digital enablement and market connectivity.”

Natalie Wallder, head of clearance & collateral management, Apac, at BNY Mellon, says that this is part of a continuing effort to improve the user experience.

“Ultimately, we want to arrive at an end state where we have a single holistic collateral pool that is accessible 24-hours a day, and we’re making huge strides towards this connectivity,” she says.

Japan

Improved connectivity has been particularly important for the collateral manager’s Japanese client base this year.

In the past securities lending and repo activities in the country largely took place between domestic participants, but in recent years there has been growing appetite among Japanese investors to lend their government bonds to international broker dealers.

“Ongoing geopolitical issues mean that equity markets continue to suffer. This has an impact on the collateral universe and highlights the ongoing importance of global mobility [of collateral],” says Wallder.

The infrastructure created to support this is one of our improvements as part of a multiyear focus on system resiliency, digital enablement and market connectivity

Grieg Ramsay, BNY Mellon

The large Japanese megabanks have been active on BNY Mellon’s international collateral platform for some time, with new uncleared margin rules (UMR) increasing their need to perform cross-border transformations.

Now, though, BNY Mellon is going after the buy-side players in the market. To do so, the collateral manager has been working hard on strengthening existing relationships with Japanese trust banks.

As Mark Militello, Japan country head, points out, these trust banks “provide the operational pipes to these owners and a certain level of collateral management sophistication”.

Wallder adds: “Whereas many Japanese clients would have typically travelled around the globe to initiate introductions or restricted their business mainly in Japan, their assets are being put to work now outside of Japan. Clients are engaged with counterparties in Europe, the US and expanding parts of Asia. This is where a triparty agent like ourselves can really help clients expand their business networks outside of the region to bring in that variety, choice and help with expansion.”

Australia

The collateral manager has also been very busy in Australia, as buy-side clients gear up for the sixth wave of uncleared margin rules (UMR) and the country’s superannuation funds continue to extend their investment horizon overseas.

Filippo Santilli, cross sales, global market infrastructure, says the number of clients asking to set up initial margin segregation relationships with the firm has been far higher than in any previous year. Furthermore, such clients include, for the first time, a large number of hedge funds.

“This is a powerful new trend that we haven’t really seen in the past,” says Santilli. “Once live in triparty clients think: ‘I now have a very powerful tool – what else can I do with it?’ This leads into discussions with our team around sourcing of collateral, counterparty risk mitigation, asset transformation and more.”

At the same time BNY Mellon has been busy working with the country’s superannuation funds in order to help them structure solutions for managing their pool of international collateral.

According to Filippo, there was a sharp increase in superannuation funds seeking alpha generation from overseas markets following the publication of the Royal Commission into Misconduct at the start of 2021, which recommended clamping down on the high fees that many charge their members.

Superfund investment overseas is likely to increase further in the coming months as the market continues to consolidate, and merged entities bump up against their concentration limits for investing in Australian equities or real estate.

“There seems to be a real energy coming out of Australia this year, post-pandemic, as people get on and do business, and that’s reflected in the amount of business we are now doing there, which is great to see,” says Wallder.

China

Although BNY Mellon started accepting Chinese bonds as collateral last year, volumes have not been as high as the collateral manager would have hoped, largely because many investors pulled back from the country in the wake of Covid-19.

Nonetheless the existence of the service has opened up a large number of conversations that the firm wouldn’t have otherwise had.

“Adding Bond Connect to our platform has helped take us beyond our traditional client base of large US and European investment banks,” says Wallder. “We have now led conversations with large asset owners that have Bond Connect collateral pools and they want to see how they can now introduce secured financing opportunities.”

Wallder says these conversations have gone “very well”.

“We continue to educate people on this, and we’re building up that roster of consumers of bond connect collateral ready for when there is a resurgence of investment in China,” she says.

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