After establishing this line of business elsewhere in the region, JP Morgan entered the domestic market with securities lending and tri-party repo services, and more recently launched its derivatives collateral management capability. Since the custodian’s investment bank parent is one of the biggest sell-side names in the derivatives market, Harrison and Davies’ unit focuses on buy-side clients. Davies says the obligations in bilateral CSAs can be demanding and often require daily monitoring of collateral exposures. In these arrangements, buy-side participants can define which assets they will accept as collateral. “Typically collateral will be cash or government-issued securities, but we can manage anything that we can price, anything valued on an exchange,” Harrison says, naming equities, cash, corporate or government debt and asset-backed securities as some of the assets that JPMorgan’s systems are able to manage. Davies says investors’ awareness of collateral management is improving. They gauge the risk of the assets being provided as collateral, and run scenario tests to learn how quickly this collateral can be liquidated in the event of a counterparty default.

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