JPMorgan to Cease Settling Government Securities for Dealers, Reports Reuters

JPMorgan to Cease Settling U.S. Government Securities Transactions For Most Dealers by End of Next Year

JPMorgan Chase & Co. announced on Friday that it will discontinue settling U.S. government securities transactions for the majority of dealers by the end of next year as part of its efforts to streamline operations.

This transition will leave BNY Mellon Corp as the sole clearing bank available for such transactions between dealers and investors. In the first half of 2016, an average of $504 billion in U.S. Treasuries was traded daily, a slight decrease from the $507 billion daily average during the same period the previous year, as reported by the Securities Industry and Financial Markets Association.

The tri-party repo market, valued at $1.6 trillion, plays a crucial role in providing short-term borrowing options for Wall Street firms, who use U.S. Treasuries and other securities as collateral for their trades. A spokesperson for JPMorgan stated, "After a careful review, we have determined that it is a non-core service, especially as we simplify our business and focus on strategic growth opportunities."

The bank’s Government Securities Settlement Services will be phased out by the end of 2017. Currently, BNY Mellon handles 80 to 85 percent of tri-party repos, with JPMorgan managing the remainder, according to analysts.

In response to this change, BNY Mellon reaffirmed its dedication to the settlements business. The decision will impact the settlement of general collateral finance repos for approximately 30 dealers and broker-dealers, as reported by Bloomberg.

This decision follows a recent change wherein customers of JPMorgan could no longer conduct repo trades with clients of BNY Mellon, and vice versa, effective July 15. This was in compliance with a new Securities and Exchange Commission regulation, which has effectively divided the tri-party repo market into two segments.

The SEC’s rule changes are part of a wider reform initiative aimed at reducing the dependency on intraday credit from clearing banks for these lending arrangements. Treasury spokesman Rob Runyan stated, “Treasury has been in regular communication with J.P. Morgan regarding its plans for Government Securities Settlement services. We are fully confident that Treasury securities will continue to trade and settle as usual."

He also noted that the Treasury is working with JPMorgan and the Federal Reserve to ensure a smooth transition that minimizes any potential impact.