BNY Mellon Launches Clearing Business

Bank of New York Mellon Corp. announced Tuesday it launched a unit designed to clear futures and derivatives trades.

The New York-based company is already providing clearing services through its Pershing LLC unit, but analysts said that the company is trying to ramp up its clearing capabilities as Congress continues to examine financial regulatory reform, which could include more over-the-counter derivatives that will need to be cleared or traded through exchanges (see "New York Fed Taking Lead on Derivatives DB," MME 6/14/2010).

The new BNY Mellon [BK] unit, BNY Mellon Clearing, plans to become a clearing member on major exchanges and central clearinghouses globally. It is a U.S.-registered futures commission merchant and a member of the National Futures Association.

"BNY Mellon Clearing represents a logical extension of our business model as the leading securities servicing provider in the world," said Gerald Hassell, president of BNY Mellon. "With this new company, we will meet the growing needs of clients who trade derivatives and are seeking a global clearing partner with proven operational, financial and risk management expertise."

Sanjay Kannambadi will be chief executive officer of BNY Mellon Clearing and report to Art Certosimo, a senior executive vice president and CEO of alternative and broker/dealer services at BNY Mellon. Kannambadi was head of BNY Mellon's office of innovation, where he led a team responsible for the development and commercialization of new products and services across the company's businesses.

"BNY Mellon Clearing will provide clients with our extensive operations, technology, risk, finance and compliance capabilities, along with access to exchanges and clearinghouses around the world," Kannambadi said. "The company's formation is designed to anticipate the rapid changes occurring in the clearing and settlement process for derivatives and the need for institutional investors to have a capable, stable partner as the market grows and evolves."

BNY Mellon had $22.3 trillion in assets under custody and administration, including $1.1 trillion in assets under management, as of March 31.

Analysts said the over-the-counter derivative market is expected to grow in the next year, but with growth comes challenges, including counterparty risk, which is consistently considered a key concern of the derivatives marketplace.

Fritz McCormick, a senior analyst at Aite Group in Boston, said that firms suggest that the need for better reconciliation and reporting is crucial, especially where they must collect information from predominantly manual processes and compile it to mitigate internal risk or appease regulators. He said that he think significant changes are ahead for the over-the-counter derivatives market “as increased risk management, automation, and regulation become increasingly necessary.”

 “Market participants will have no choice but to examine their needs and implement technologies — either industry utilities or internally deployed solutions — that can support best practices and regulatory compliance while acting as a platform for the ongoing growth of the OTCD market,” he said.