Bank of New York Mellon Corp. announced Tuesday that it has started a unit to clear futures and derivatives trades.
The New York company already provides clearing services through its Pershing LLC unit, but analysts said it is trying to ramp up its clearing capabilities as Congress continues to examine financial regulatory reform, which could lead to more over-the-counter derivatives needing to be cleared or traded through exchanges.
BNY Mellon Clearing plans to become a clearing member on major exchanges and central clearing houses globally. It is a U.S.-registered futures commission merchant and a member of the National Futures Association. Sanjay Kannambadi will be the new unit's chief executive.
BNY Mellon had $22.3 trillion of assets under custody and administration, including $1.1 trillion under management, on March 31.
Analysts said the over-the-counter derivatives market is expected to grow in the next year, but with growth comes challenges, including counterparty risk, which is consistently considered a key concern of the derivatives marketplace.
Fritz McCormick, a senior analyst at Aite Group in Boston, said there is a need for better reconciliation and reporting, especially at firms that must collect information from predominantly manual processes and compile it to mitigate internal risk or appease regulators.
Significant changes are ahead for the over-the-counter derivatives market "as increased risk management, automation and regulation become increasingly necessary," McCormick said.
"Market participants will have no choice but to examine their needs and implement technologies — either industry utilities or internally deployed solutions — that can support best practices and regulatory compliance while acting as a platform for the ongoing growth of the OTCD market," he said.