JP Morgan is to pull back from certain government securities settlement functions for broker-dealers, as the bank continues to shed capital intensive businesses.
JP Morgan will no longer settle US treasury and agency bonds through its US broker-dealer arm. It will also no longer provide settlement services for auctions guaranteed by the Fixed Income Clearing Corporation (FICC), the fixed income clearing service provided by DTCC, as well as for general collateral finance (GCF) repo.
“After careful review, we have determined that it [government securities settlement] is a non-core service, particularly as we simplify our business and continue to prioritize strategic growth opportunities,” said a spokesman for J.P. Morgan in a statement.
“We have built our custody, collateral management, prime brokerage and Treasury services business into leading franchises, and in no way are those growing businesses affected by this decision.”
The exit is to affect around 30 bank and broker clients, including Credit Suisse, HSBC and RBS according to reports from the Wall Street Journal.
As a result of the withdrawal from GCF repo settlement, those clients will have to turn to BNY Mellon, now the only other remaining provider for that service.
“We look forward to collaborating with market participants to help facilitate a smooth transition,” a BNY Mellon spokesperson said in a statement.
The decision comes weeks after DTCC’s FICC announced to clients it will suspend its interbank clearing service for GCP repo, causing borrowing costs for banks and broker dealers that use JP Morgan to clear and settle their repo trades to jump, according to a report from Risk.net.
It is the latest move from the bank as it looks to withdraw from certain capital intensive businesses. In 2014, it sold its US broker-dealer third party clearing arm to National Financial Services, a subsidiary of Fidelity Investments.
In the following year, it decided to no longer provide prime brokerage and clearing services to its mini-prime and smaller hedge fund client, in order to reduce its balance sheet exposures.