Knight wanted to arrange a tri-party repo for a loan from the Royal Bank of Canada with JPMorgan as the intermediary. But something apparently went wrong with the posting of collateral for the loan:
But J.P. Morgan told Knight some securities were unreadable through databases used to reach valuations, and the bank instructed Knight not to send more.
At around 5:15 p.m., Knight transferred 6,000 more securities. J.P. Morgan said some of these also were unreadable and said it lacked formal instructions required for tri-party financing.
In total, J.P. Morgan rejected more than 4,000 of the roughly 7,000 securities Knight had sent.
Someone more familiar with the intricacies of repo clearing will have to explain what "unreadable" means in this context. The WSJ piece provides very little clarity. Was this a problem the securities or with the Depository Trust & Clearing Corporation (DTCC)? It sounds like something important might have gone wrong. I just wish I could figure out what.
The article also explains that JPMorgan “is reviewing its dealings with dozens of brokerages that use the bank to settle trades, according to people familiar with the bank.” The bank is considering "dialing back" dealings with certain clients, and dumping others altogether.
Again, this all sounds pretty important. But it's impossible to know what any of it means.
My efforts to get clarity from the players here have run into a wall today. And that wall is called Labor Day weekend. Maybe next week, when everyone is back at work, I'll be able to nail this one down.
- by CNBC.com senior editor John Carney
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