BNY Mellon Says Derivatives May Need $4 Trillion More Collateral

Bank of New York Mellon Corp., ranked among the nation’s biggest securities lenders, said traders may need as much as $4 trillion in extra collateral to meet new rules set by derivatives exchanges.

The sum could range from $2 trillion to $4 trillion, Timothy Keaney, vice chairman and chief executive officer of BNY Mellon Asset Servicing, said today during a presentation hosted by Barclays Plc. Investors will need the funds because new rules designed to prevent another financial crisis require more derivatives trades to go through a clearinghouse backed by collateral in case a participant defaults.

At least seven banks including New York-based BNY Mellon plan to let customers swap lower-rated securities that don’t meet clearinghouse standards for a loan of Treasuries or similar holdings that do qualify, a process dubbed “collateral transformation.” BNY Mellon ranks second in securities lending and expects to gain business from the new rules, Keaney said.

“It’s a combination of the huge spike in volume that will have to be collateralized, and helping clients that don’t have the right collateral get the right collateral to post on behalf of their trading activities,” he said. “We think we’re starting from a great position.”

To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net Rick Green in New York at rgreen18@bloomberg.net

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