JP Morgan executes first tri-party collateral-management deal in Japan

JP Morgan has executed what it says is the first tri-party collateral management transaction with two Japanese domestic institutions.

This deal is a real "game changer" in the local market, and similar deals in Japan and Australia are likely to follow, says Karl Wyborn, Asia-Pacific head of collateral management at JP Morgan Worldwide Securities Services in Hong Kong.

Wyborn says tri-party arrangements were tested during the fallout of the financial crisis 18 months ago and proved to be both resilient and reliable. "The goal of tri-party arrangements is to facilitate secured lending, and this has proven to be the case," he says.

Having moved to Hong Kong three years ago, Wyborn took his first ever trip to Tokyo promoting tri-party collateral management soon after. The recent deal has been a result of marketing and promotion over the past few years as well as a realisation by the market that tri-party makes commercial sense, he says. 

Wyborn described tri-party as a "slam dunk" for the lender, because the market convention is for the borrower to pay the fees involved, but he would not reveal the name of either the borrower or the lender which are both Japanese firms.

JP Morgan is one of only a handful of global tri-party specialists. Others include BNY Mellon, Clearstream and Euroclear.

Overall, collateral-management specialists are reporting increasing traffic, in areas such as securities lending. Generally, the securities services of banks say that book sizes, in terms of collateral trading, have rebounded in recent months to just below pre-crisis levels.

For instance, most of the investors that exited the securities-lending sector in the initial aftermath of the financial crisis have trickled back in over the past 18 months or so, says Wayne Burlingham, global head of securities lending at HSBC Securities Services in London.

"However, there has been a small percentage of investors who have stayed out on the basis that the risks do not justify potential returns," he adds. Overall, hedge funds have been hit and their activity, which previously drove this sector, is down. Burlingham says the size of the market has shrunk, but he is expecting the slow pick-up to continue.