Prime broker Newedge and MTS, the European fixed income trading market owned by the London Stock Exchange Group, have jointly launched the agency cash management (ACM) multilateral trading facility (MTF), an electronic auction facility for the tri-party repo market.
On the platform, investors enter into secured money market investments using the tri-party repo mechanism.
Newedge says it launched the platform in response to increasing demand from institutions for a solution to the cash management challenges faced by the buy- and sell-side. The platform runs on MTS fixed income trading market technology.
ACM allows investors to select acceptable counterparties, rating of collateral, currencies and trade duration. Collateral is held in a segregated account in the investor’s name at an established tri-party agent, typically a highly rated custodian bank, and is subject to transfer of ownership that can be sold on demand if the counterparty defaults.
The platform is available for corporates, asset managers, bank treasurers, sovereign wealth funds, pension funds, securities lenders, insurance companies, banks and hedge funds. By bringing a new pool of cash providers to the market, the platform will also benefit banks facing continued pressure to diversify their sources of funding in the face of new regulations planned under Basel III, Newedge says.
“The new ACM platform has opened one of the biggest money market products to a new audience that will ensure best execution for cash investments via our auction methodology,” Angela Osborne and Ulf Bacher, co-heads of the ACM business at Newedge, said in a statement. “Newedge is delighted to be working with MTS on this initiative. Our partnership brings together market experience and best-in-class technology to offer the benefits of tri-party repo to the buy-side whilst delivering new pools of liquidity to the sell-side.”
Oliver Clark, money market product manager at MTS, adds: “The successful launch of our new agency cash management platform addresses the demand for an innovative cash management solution for both banks and buy-side investors. ACM introduces the tri-party repo mechanism to a new group of participants in the form of corporates, hedge funds and securities lenders in a competitive, electronic auction platform. The cash providers benefit from the security of tri-party repo in place of unsecured money market products and their counterparty banks with an alternative source of funding.”
In a repo, investors lend cash for a short period of time to another party. Securities are used as collateral for the loan, and the seller agrees to buy back the security at a pre-agreed rate of interest and term.
Reporting by Christopher Gohlke, Global Custodian, an Asset International publication