The US bank is in talks to take over the venue, which was founded by former RBS and Newedge clearing executive John Wilson. Despite an extensive roadshow to attract investors, DBV-X did not launch last year as planned after it failed to reach commercial terms with Tradition.
“BNY Mellon . . . confirms that it is currently conducting due diligence and in talks with DBV-X,” it said in a statement on Tuesday.
BNY Mellon’s move extends its reach into the repo market, where institutions like banks temporarily borrow cash from investors in exchange for pledging bonds as collateral.
The US bank is already one of the world’s largest custodian banks providing intermediaries with temporary credit and collateral, to help them roll over loans. DBV-X plans to launch a centralised venue for market participants to exchange collateral, a radical departure for market that has historically been conducted directly between banks.
It also highlights how the market, typically dominated by investment banks, is being fractured and recast by new banking and markets rules.
Banks are required to hold more capital on their balance sheets to cover their market trades, making the cost of trading less profitable. The repo market in Europe has declined by a fifth since the height of the financial crisis.
At the same time investors and banks must find more margin, which protects against defaults, to back their over-the-counter derivatives trades.
DBV-X aims to match treasurers and asset managers sitting on billions of high-quality assets with investors like hedge funds and pension funds in need of short-term funds. It confirmed on Tuesday it was separating from Tradition with immediate effect. “Both parties acknowledge the assistance provided to each other during their period of collaboration,” it said in a statement.
However there are doubts whether the repo market will embrace more electronic trading, where deals are executed over a centralised order book akin to an exchange.
A report last week by the International Capital Markets Association highlighted a trend of younger and more inexperienced employees replacing older staff across fixed income trading. The repo market was the only possible exception, ICMA said, as “older experienced traders are still seen as adding value, and providing something that the interbank order book cannot: knowledge, flow, colour, experience and discretion.”
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