2025. Where do we even start? From heightened periods of volatility challenging short-duration funding markets, to a constantly shifting regulatory landscape affecting everything from the implementation of mandatory US Íø±¬³Ô¹Ï and Exchange Commission (SEC) clearing, to the proposed recalibrations of supplementary leverage ratio (SLR) and Basel III Endgame uncertainty.
However, despite all of this, the topical issue that is front-and-centre of most financing desks’ minds is capital optimisation, especially as we get closer to year-end and the funding tenor curve steepens.
Participants in funding markets can no longer afford the privilege of exercising a linear view on the topic, and the same goes for triparty agents. At J.P. Morgan, our focus is on supporting our clients’ balance sheet optimisation by enabling participants to access liquidity in frontier collateral markets, and by onboarding an array of new liquidity providers, particularly from the buy side, and thereby challenging the narrative that triparty platforms are solely the purview of sell side institutions.
However, the advent of buy side entrants brings unique challenges that require thoughtful solutions.
With banks increasingly factoring in the net stable funding ratio (NSFR) premium for funding transactions over reporting periods, J.P. Morgan has focused on expanding the supply of non-financial corporates on its platform, as these entities are afforded a higher available stable funding (ASF) factor in repo transactions.
Mobilising the estimated US$8 trillion of corporate cash reserves (HEC, 2025) into the repo market also presents an opportunity for corporate treasurers to access an alternative cash management tool other than deposits or money market funds to maximise yield on non-operating cash reserves.
While some corporates are already accessing the repo market directly through triparty or bilateral methods, we are also seeing increased interest in agency financing solutions to facilitate access. It is interesting to note that buy side institutions are not only serving as liquidity providers but are also active as collateral providers, and these participants are gradually advocating for support to manage collateral for margin obligations (IM/VM/financing).
To facilitate direct access via our Triparty platform, we have focused on mitigating three key hurdles for buy side clients considering entry into the repo market: operationally intensive collateral processes, the absence of a defined liquidation framework, and stretched legal resources.
We began addressing the operational challenges several years ago, notably when a large institutional client faced limitations due to a lack of SWIFT capability, restricting their ability to instruct collateral movements to J.P. Morgan Triparty from their custody accounts. Furthermore, once assets were used as collateral within Triparty, the client faced challenges tracking their positions when there was a requirement to cover a market sale. There were also concerns about impact to agency lending programmes, as the client wanted to avoid unnecessarily using assets with intrinsic lending value as collateral.
Our solution came about in the form of Collateral Transport, which builds extensively on our Trading Services platform infrastructure to enable the seamless transportation of assets between a client’s custodian (for trade settlement), J.P. Morgan Agency Íø±¬³Ô¹Ï Finance (for lending activity), and collateral agent (for meeting margin obligations).
More recently, we expanded our Collateral Transport offering to create a centralised inventory management and asset record that reflects daily utilisation of assets across all securities lending and collateral management activity, effectively enabling the delegation of RQV monitoring and improving collateral velocity. The effective outsourcing of collateral instructions, settlement, and lifecycle management of securities has significantly improved the accessibility of J.P. Morgan Triparty to a broader range of clients.
It is also imperative to recognise the importance of having an established liquidation framework, which continues to be a sticking point for buy side and sell side clients alike. The latter have typically faced barriers when entering emerging collateral markets, whereas the former have encountered challenges when entering the platform for the first time.
J.P. Morgan has established an end-to-end liquidation solution within our standard Triparty framework, whereby J.P. Morgan Triparty as an agent can facilitate liquidation services. In a default scenario, J.P. Morgan will act on instructions from the collateral receiver to transfer and act on the enforced securities. Our ability to offer this recourse addresses a significant barrier for new entrants to the market, such as non-financial corporates.
Our Triparty platform has long been developed with scalability in mind from an operational and legal perspective, with the latter materialising in the form of standardised collateral agreements that operate under programme terms. Less can be said about trading documentation, which typically is negotiated bilaterally without the involvement of a triparty agent.
We are increasingly cognisant of the fact that new participants are constrained with the burden that comes with papering new counterparties. While trading documentation is largely standardised in the form of the Global Master Repo Agreement (GMRA), Global Master Íø±¬³Ô¹Ï Lending Agreement (GMSLA), or the Master Íø±¬³Ô¹Ï Loan Agreement (MSLA) documentation, the reality is very different with many firms utilising vastly different templates, which ultimately prolongs legal negotiations.
This legal conundrum can often be overcome by entering into, and leveraging outsourced agency financing solutions. However, for clients looking to trade directly in the market, we believe there is further work that can still be done to improve industry trading documentation, particularly for new entrants that are looking to build and access the securities financing market at scale.
Lowering barriers to entry for buy side participants and providing banks with access to them is not the only way we are supporting the sell side with managing capital constraints. Expanding the number of existing counterparties, particularly agent lenders, who accept pledge has been a key priority for us, given the lower risk-weighted asset (RWA) treatment afforded to trades conducted under pledge instead of title transfer.
In many cases, we have heard from clients that pledge is becoming a deciding factor for making cross-currency collateral transactions commercially viable. This has been a driver in propelling J.P. Morgan Triparty pledge balances to grow by 158 per cent since 2023, over 10 per cent of our overall book. As Basel III is fully phased in, we expect pledge balances to continue growing at an increased rate relative to our title transfer balances.
In addition to pledge, J.P. Morgan is working closely with CBOE Clear N.V. to support the collateralisation of securities finance transactions to help reduce RWA usage for mutual clients. This is an area to watch, particularly for participants that do not have the legal resources to negotiate the full suite of pledge and security interest documentation, participants based in jurisdictions that do not recognise capital benefits from pledge structures, and banks that are not able to trade with agent lenders on an undisclosed basis.
Although much of this article has focused on banks and non-financial institutions, it is equally important to consider the impact of balance sheet tightening on hedge funds. This environment has driven increased interest from non-prime broker banks to step in as alternative liquidity providers via triparty, as well as from hedge funds seeking to migrate existing bilateral activity into triparty structures.
Our methodology for supporting hedge funds has fixated on enabling the funding of emerging market securities, with J.P. Morgan Triparty recently launching in South Africa and Malaysia to bring the total number of live collateral markets on the platform to 33. Further launches are planned in Saudi Arabia and Indonesia. We have also focused on the financing of unconventional assets held by hedge funds, such as cryptocurrency ETFs, which have gained momentum despite the higher haircuts. We continue to see collateral balances for these assets grow, along with the number of counterparties willing to fund them.
We recognise that capital optimisation is not a one-size-fits-all solution. By proactively addressing operational challenges, implementing a robust liquidation framework, and continuously seeking to enhance access for a diverse array of clients, J.P. Morgan is focused on lowering barriers for all market participants, and empowering clients to navigate capital constraints more effectively.
The sustained growth in pledge balances, along with our strategic expansion into new markets, reflects our commitment to the evolving demands of the securities finance landscape, ensuring that we remain a trusted partner for our clients.
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WTS Hansuke
Roy Zimmerhansl
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