(BN) JPMorgan to House Client Collateral in Bank after Futures Losses

A newspaper story reported that JPMorgan Chase Co. will allow futures and swaps customers to house excess collateral in a separate bank account as it seeks to reassure investors after losses at MF Global Holdings Ltd. and Peregrine Financial Group Inc. The new service will allow clients to automatically aggregate excess margin at JPMorgan Chase Bank N.A. The move is meant to help customers on both the buy side and sell side deal with new requirements introduced by the Dodd-Frank Act in the U.S. and similar regulations being developed in Europe. [Lofchie Comment: This is not the type of item I would ordinarily include in the newsletter, since it is a "business" item rather than a legal/regulatory development. However, I include it because it makes one of the points that I have made in my comments: The Dodd-Frank requirement that customers hold swaps collateral in an FCM puts them at much greater risk than if they could hold collateral at a bank. This is clearly illustrated by the fact that, even in the case of JPM, which I believe is regarded as being as strong as any U.S. financial institution (obviously, I am not a credit analyst), customers seemingly prefer to hold their collateral at a bank, rather than at an FCM. The notion that we are somehow protecting ERISA plans and mutual funds by putting them at the credit risk of an FCM, rather than allowing them to tri-party collateral at a bank, seems wholly eccentric to me (witness MF Global and Peregrine). Further, the CFTC's pushing for futures "insurance" is simply not relevant to the fundamental problem: $250,000 of insurance is simply not significant to institutional customers who are worried about losing their positions and their collateral in a volatile market.]

Cross-Reference(s): Dodd-Frank Act

View in full here (links externally to Bloomberg website).