ICMA: CCP repo on the rise
12 February 2016 London
Image: Shutterstock
A shift towards centrally cleared repo transactions and the building regulatory strain on global systemically important financial institutions (G-SIFIs) were cited as key developments in the European repo market in a new study.
The results of the European Repo and Collateral Council (ERCC) and the International Capital Market Association鈥檚 (ICMA) European repo market survey also showed a fractional growth of outstandings from the June 2015 result.
The survey calculates the amount of repo business outstanding on 9 December 2015 from the returns of 72 offices of 68 financial groups, mainly banks, and set the baseline figure for market size at approximately 鈧�5.61 trillion, which was largely the same as the roughly 鈧�5.61 trillion seen in June.
ICMA put the relative stability of outstandings between the two surveys is down to the expansion of non-EU banks' European repo books.
Meanwhile, the study notes a decline in the activity of G-SIFI banks, which are most intensely impacted by new regulation.
The share of all government bonds within the pool of EU-originated fixed income collateral reported in the survey recovered.
This change was driven by German and UK government securities. It remains difficult to unravel the net impact of quantitative easing by European central banks, according to ICMA.
According to the study, the reduction in repo activity from its pre-crisis highs is widely attributed to the impact of new regulation such as the net stable funding ratio (NSFR) and the mandatory collateraliseation of over-the-counter (OTC) derivatives.
Mandatory collateralisation of OTC derivatives was also cited as a primary driver behind the growing shift from unsecured markets, which in turn is bringing in banks which had previously no reason to use repo, as well as new types of participant, particularly non-bank financial institutions.
The share of triparty repo recovered to 11 percent from 10 percent but some of this increase may have been due to improvements in reporting by several banks, stated the study.
Godfried De Vidts, chair of ICMA鈥檚 ERCC, said: 鈥淭his thirtieth European repo market survey is a continuation of ICMA ERCC鈥檚 commitment to providing authoritative data on secured repo and triparty markets.鈥�
鈥淕iven this long experience in collecting and interpreting data, we recommend caution with the forthcoming EU Securities Financing Transactions Regulation.鈥�
鈥淭he authorities would be wise to start with carefully designed, clear and simple data requests.鈥�
鈥淚nappropriate interpretations of data could result in mistaken policy interventions, so care is needed to evolve robust processes based on practical experience.鈥�
鈥淲e will continue our data collection, given the wealth of historical data captured in this 15 year survey series.鈥�
The results of the European Repo and Collateral Council (ERCC) and the International Capital Market Association鈥檚 (ICMA) European repo market survey also showed a fractional growth of outstandings from the June 2015 result.
The survey calculates the amount of repo business outstanding on 9 December 2015 from the returns of 72 offices of 68 financial groups, mainly banks, and set the baseline figure for market size at approximately 鈧�5.61 trillion, which was largely the same as the roughly 鈧�5.61 trillion seen in June.
ICMA put the relative stability of outstandings between the two surveys is down to the expansion of non-EU banks' European repo books.
Meanwhile, the study notes a decline in the activity of G-SIFI banks, which are most intensely impacted by new regulation.
The share of all government bonds within the pool of EU-originated fixed income collateral reported in the survey recovered.
This change was driven by German and UK government securities. It remains difficult to unravel the net impact of quantitative easing by European central banks, according to ICMA.
According to the study, the reduction in repo activity from its pre-crisis highs is widely attributed to the impact of new regulation such as the net stable funding ratio (NSFR) and the mandatory collateraliseation of over-the-counter (OTC) derivatives.
Mandatory collateralisation of OTC derivatives was also cited as a primary driver behind the growing shift from unsecured markets, which in turn is bringing in banks which had previously no reason to use repo, as well as new types of participant, particularly non-bank financial institutions.
The share of triparty repo recovered to 11 percent from 10 percent but some of this increase may have been due to improvements in reporting by several banks, stated the study.
Godfried De Vidts, chair of ICMA鈥檚 ERCC, said: 鈥淭his thirtieth European repo market survey is a continuation of ICMA ERCC鈥檚 commitment to providing authoritative data on secured repo and triparty markets.鈥�
鈥淕iven this long experience in collecting and interpreting data, we recommend caution with the forthcoming EU Securities Financing Transactions Regulation.鈥�
鈥淭he authorities would be wise to start with carefully designed, clear and simple data requests.鈥�
鈥淚nappropriate interpretations of data could result in mistaken policy interventions, so care is needed to evolve robust processes based on practical experience.鈥�
鈥淲e will continue our data collection, given the wealth of historical data captured in this 15 year survey series.鈥�
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