Northern Trust has expanded its collateral management system and will now support forward settling mortgage-backed securities in response to new margin recommendations affecting asset managers that use the securities in a variety of fixed income trading strategies.
Offered as a component of investment operations outsourcing for asset managers, Northern Trust’s collateral management service will support two-way variation margin.
The forward-settling nature of most agency mortgage-backed securities transactions exposes trading parties to counterparty credit risk between trade and settlement.
In order to prudently manage counterparty exposures, the Treasury Market Practices Group (TMPG) recommends that asset managers not be allowed to trade forward settling mortgage-backed securities unless they have credit agreements in place with counterparties or can display progress to that end.
Judson Baker, product manager for derivatives and collateral management at Northern Trust, said: "Many asset managers are struggling to comply with the protocol, which affects securities that are critical for mortgage strategies as well as short-term fixed income trading strategies."
"By offering this capability, Northern Trust helps these managers to comply with new rules while saving them the time and expense of building or buying a system or hiring additional staff to monitor their credit support agreements."
Available on a global basis to investment managers, institutional investors and other asset servicing clients, the new capabilities are integrated with Northern Trust's investment operations outsourcing, global custody and collateral management systems to support all aspects of post-trade processing.
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