How does the liquidity tool help in reducing counterparty risk for hedge funds?
The Bank of New York Mellon has launched the MarginDIRECT, a new liquidity tool that helps hedge funds manage margin positions and reduce counterparty risk in an uncertain credit environment.
The Bank of New Mellon has developed MarginDIRECT by combining two of its services – custody and MoneyFunds Direct – into a single tool managed by its liquidity services group.
The Bank of New Mellon has said that MarginDIRECT provides safekeeping for posted margin balances away from a hedge fund’s over-the-counter derivative trading counterparties, and thereby reduces the hedge fund’s risk exposure. Margin assets received on behalf of clients are targeted for investment through MoneyFunds Direct, the bank’s on-line liquidity portal.
According to the bank, MarginDIRECT’s key service features include the establishment of multiple accounts for each hedge fund counterparty, straight-through-processing for optimum transaction speed, and reporting – via both traditional periodic reports and on-line updates – for the hedge fund and its counterparties.
In addition, to maximize liquidity, MarginDIRECT offers real-time reporting on all margin activity; by ensuring that both parties can monitor that they are fully collateralized, this reporting can significantly reduce hedge fund risk exposure.
Jonathan Spirgel, managing director and global head of liquidity services at The Bank of New York Mellon, said: MarginDIRECT reflects our commitment to helping our clients succeed in the current credit environment. Hedge funds need access to resources that measure up to today’s challenging market conditions, and MarginDIRECT can serve as a single and complete solution for managing margin positions, account data and money market investments.