BNY Mellon Automates Calculation of Collateral Requirements in ETF Marketplace

New York - 27 March 2014

Designed to Lead to More Efficient, Reliable Market 

BNY Mellon, a global leader in investment management and investment services, has automated the calculation of collateral requirements in the exchange-traded funds (ETF) marketplace.  The BNY Mellon enhancement is designed to reduce errors in ETF transactions and improve the ability of Authorized Participants (APs) to manage and allocate funds.

The primary market in ETFs is driven by APs which are large financial institutions/broker dealers that trade the underlying securities during the creation or redemption of ETF units.

With its recent innovation, BNY Mellon has developed an automated process for calculating collateral requirements and reporting them to the APs on a daily basis.  Prior to this enhancement, the APs were notified through a manual process that was not as efficient as the new automated system. This additional functionality builds on BNY Mellon's ETF Center, which was launched as the industry's first global technology platform designed to serve the needs of APs on both the web and mobile applications.

"More efficient and automated transactions will further enhance the reliability and attractiveness of the ETF marketplace," said Joseph Keenan, head of global ETF services for BNY Mellon.  "Authorized participants that work with BNY Mellon will have better reporting and better management of the cash collateral they employ in the marketplace."

With many funds, APs have the option of delivering a basket of securities or cash collateral to an ETF servicer, such as BNY Mellon, when creating new ETF fund shares.  By posting cash collateral on the settlement date of an ETF order, APs can ensure that the ETFs shares are released in a timely manner even if some components of the ETF basket cannot be delivered by settlement date. The collateral remains in the ETF servicer's account until delivery of the components of the basket covered by the collateral. 

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development