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TheStreet Open House

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

Stock quotes in this article: BK

NEW YORK, June 3, 2013 /PRNewswire/ -- 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.

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