Rich Mitterando
GlobeClear Product Manager

Keeping up with the many changes in the global markets can be a daunting task. Even in the United States, one of the largest and most developed capital markets, there are significant changes underway that may affect how you conduct business.

U.S. Settlement Market Structure
As the largest global capital market during the last few decades, the U.S. markets have placed a great emphasis on standardizing post-execution infrastructure to lower costs and reduce risks. While many regions have multiple central securities depositories (CSDs), the United States relies on just two main CSDs—the Fedwire Securities System and the Depository Trust & Clearing Corp (DTCC)—to settle all book-entry equities and fixed income instruments.

J.P. Morgan is one of only two clearing banks for the U.S. Federal Reserve System. In this capacity, we settle a large portion of the daily securities volume and play an important role in the liquidity and stability of the market. We also directly participate with the DTCC, with board-level and working group representation that helps to shape and drive improvements to both processes and infrastructure.

Proposed Market Structure Changes
In reaction to the market events of the last year and to reinstate confidence in the U.S. financial market, the Obama administration recently proposed a financial regulatory reform plan that would alter the current U.S. market structure. Under this proposal, the Fed would have more power to provide oversight over financial institutions as well as payment and settlement systems. Though any proposed changes will take time to be approved and/or implemented, institutions should take note of some recently introduced changes designed to make the settlement process more efficient and equitable.

1. Changes in Fedwire Delivery Deadlines
On July 1, the deadlines for the origination of Fedwire eligible deliveries changed to a firm 3:00 p.m. Eastern Time (ET) closing. This new practice levels the field for all market participants, wherever they are located, while still allowing for some flexibility in turning around late receipts up to 3:15pm ET, if both counterparties agree in advance. The new process will help to ensure our market participants, particularly those outside the United States, are treated similarly to domestic U.S. participants. Overall, we expect this to result in improved settlement rates and a more efficient settlement process for our clients.

2. New Treasuries Fails Fines
To encourage lending and drive the U.S. economic recovery, the Fed has held the federal funds interest rate at nearly zero. This has created higher settlement fail rates for U.S. Treasuries. To combat this and remedy fails quickly, the Treasury Market Practice Group (TMPG) recommended a new charge on treasuries fails. Implemented on May 1, the practice calls for the failing party to make full payment of all fails charges in the month following the failed trade, as long as the receiving party has provided timely notice on the amount due. While not mandatory for the receiving party to charge for treasuries fails, the TMPG strongly encourages this practice to help reduce future fails.

Your Voice at the Table
As the global markets evolve in the aftermath of the financial crisis, we at J. P. Morgan understand the value of our role as a lead player in the U.S. market. J.P. Morgan is at the forefront of industry discussions, both as a voice for our clients to the market and in representing the market to our clients. Our involvement in industry committees, organizations, working groups, and boards positions us to help recommend, monitor and implement. For both changes outlined above, we worked closely with members of the TMPG, Securities Industry and Financial Markets Association (SIFMA), the Asset Managers Forum (AMF), and other industry representatives. Our goal is to develop these best practices and ensure our clients' perspective is heard.

Understanding that clear and regular communication is even more critical in times of change, we have consistently provided clients with customized electronic market alerts, delivered well in advance of any changes. In fact, we were one of the first in the industry to supply customized reports to help track and calculate these new fail charges for our clients.

How Can We Help You?
J.P. Morgan's GlobeClear platform has direct links to the DTCC and the Fedwire, allowing our clients to benefit from some of the best deadlines in the market while efficiently facilitating same-day turnarounds. Clients can link their trades and recycle deliveries, in advance of settlement, thus optimizing delivery without any last minute intervention. Our regional client coverage teams enable us to provide local support no matter where our global clients are located.

For more information, contact Rich Mitterando at richard.v.mitterando@jpmorgan.com or +1-212-623-8198.