BNP Paribas Securities Services has adopted automated, standardised messaging for its collateral protection programme to reduce operational risk for buy- and sell-side OTC derivatives market participants.
BNP Paribas - a global custodian with US$7 trillion-worth of assets under custody - has partnered with financial messaging provider SWIFT to integrate automated messaging to its Margin Protect service.
It is offering to be a safe house for client assets as new regulation imposes higher collateral and margin requirements for both centrally and bilaterally cleared OTC derivatives. Standardised swaps trades will also have to be reported and cleared under the new changes.
BNP Paribas has set up a tri-party asset protection service, where collateral and margin balances can be kept in a segregated custody account, independent from buyer and seller.
"We are anticipating an increase of volume in the market on these kind of requests and believe it is really important to have a standard format and process to manage all these operations," Hélène Virello, head of collateral management at BNP Paribas Securities Services, said.
Collateral has become a critical topic for derivatives market participants following rule changes under US Dodd-Frank Act and the European market infrastructure regulation, with market participants fearing collateral shortage and management challenges.
Virello said this will lead to market demand for efficient collateral services, including a standarised system to communicate asset exchanges which until now has been largely reliant on fax and emails.
"So far, there has been no urgent request from the market to have something completely automated," she said. "With the new regulation, volume is going to increase drastically. We can't manage it manually. We need to have something standardised.
"Clients can communicate with us as usual, but we will use the SWIFT format and messages to communicate with other parties. We take care of that," she said.