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BNY Mellon Analytics 50 Submission


Kevin Fedigan, Divisional Chief Information Officer, Broker Dealer Services


BNY Mellon


Financial Services

Business Challenge

In a tri-party repo transaction, a third-party custodial bank such as BNY Mellon acts as an agent and intermediary between the cash borrower (dealer) and cash lender (investor), facilitating settlement between dealers and investors. The tri-party agent maintains custody of the collateral securities, processes payment and delivery between the dealer and the investor and provides other services, including settlements, valuation of collateral, and optimization tools to allocate collateral.

The 2008 financial crisis revealed that the market could experience systemic problems: dealer defaults could leave investor counterparties or a tri-party agent holding increasingly illiquid collateral, leading to the seizing of the financial markets. In response, the U.S. Tri-Party Repo Infrastructure Reform Task Force, sponsored by the Federal Reserve Bank of New York, asked that BNY Mellon—a leader in the tri-party repo market, reduce the amount of intraday credit it provides to collateral providers by 90% without creating market disruption to a systemically important financing vehicle in the capital markets.

Analytics Solution

Working with the Federal Reserve and the industry, BNY Mellon technology and business teams aimed to identify and implement ways to take risk out of market operations by creating two types of optimization algorithm.

End state optimization leverages a mixed-integer linear programming model to identify the best end-state in terms of allocated collateral. This is based on dealer portfolio, lender preferences, security constraints and managing concentration risk.

Transition state optimization identifies an ordering of instructions to transform the portfolio from the current start state to an end state determined either by end state optimization or, in the case of rebalancing, a largely manual method.


The initiative to practically eliminate intraday credit risk was initially defined as a 90% reduction. BNY Mellon has exceeded the 90% goal to reduce secured credit extended in the tri-party repo market through a 97% reduction in secured intra-day credit.