Bank of New York Mellon Extends Offerings to Include Securities Clearing

Source: PR Newswire 22 June 2010

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BNY Mellon, the global leader in asset management and securities servicing, today announced the creation of a new company to clear futures and derivatives trades on behalf of institutional clients. The company, BNY Mellon Clearing, LLC, is a U.S. registered futures commission merchant and a member of the National Futures Association, and plans to become a clearing member on major exchanges and central clearinghouses on a global basis to support the trading activities of its clients.

This is an obvious response to the growing preference of Regulators across the world to see more and more transactions on centrally cleared hubs. This trend to more centralized clearing has two major side effects.

First, as more transactions get standardized and centrally cleared, a platform for further financial innovation is created allowing firms to recombine these standard offerings in new ways. This phenomenon, known as the spiral of financial innovation, may be slowed down by regulations that require higher capital on non-standardized transactions.

Second, as more transaction consolidate onto hubs, the network becomes less resilient to failures of the hubs themselves. This is similar to the network effects found in the internet and the electricity grid which are resilient to failures of thousands of lesser connected nodes but very brittle for failures of key highly connected hubs.