“If the repo market isn’t working, none of this is working,” said Andy Hill, senior director of the International Capital Market Association (ICMA), when discussing repo as a cornerstone of the system. finance at the Securities Finance Times Winter Symposium on Securities Finance Technology.
Hill made the comment on the Symposium’s Repo panel that explained how the industry can make the market more resilient, beyond regulatory intervention.
The discussion was led by BondCliq’s Head of European Expansion, Gabriele Frediani, who moderated the timely repo panel, which took place against the backdrop of wider industry concerns about the repo market.
The panel included EMEA Business Development Manager for Financing Solutions at State Street Cassandra Jones, EMEA Sales Director at GLMX Andy Turvey and Business Development Manager for Straight Through Processing (STP) at MarketAxess Camille McKelvey.
Giving an overview of the repo landscape, ICMA’s Hill said: “Repo is a bank-intermediated product, repo trades across banks’ balance sheets.
“It is important that banks are able to swap their matchbooks, take positions on their balance sheet and provide two-way liquidity in repos on all different classes of bonds. It becomes more difficult. »
The panel expressed concern about Basel’s regulations, alluding to the fact that its regulations have made it increasingly costly for the industry to enforce the balance sheet, especially for repo, which is a relatively large volume transaction. high and low yield.
According to ICMA’s Hill, the industry has seen banks improve balance sheet management over time and witnessed a move towards increased clearing. However, the industry still experiences moments of vulnerability.
He added: “We are hearing concerns from money market funds being penalized for being long in cash at certain times of the year.
“We are hearing concerns from pension funds who are worried about being able to meet margin calls, as they have to ‘repo’ their holdings to raise funds. The repo market is critically important and prone to vulnerabilities.
To help the repo market deal with these vulnerabilities, the panel discussed the push towards automation integration.
McKelvey of MarketAxess explained, “In terms of the repo market and the adoption of automation, it’s been very slow and we still have a long way to go. However, in the last two or three years, there has been a real shift and focus on automating deposits and the front-to-back deposit workflow.
“We’re starting to see more buy-side businesses coming to MarketAxess’ post-trade repo platform. These clients have been instrumental in driving that growth by working with their sell-side counterparts to transition to post-trade automation. – negotiation.
Market participants have expressed the need for change in repo markets. One panelist said that if regulations do not change, it is imperative that the repo market sees continued innovation to help give customers and banks the ability to “pull different levers to deal with regulatory reporting delays”.
From integrating more peer-to-peer structures to reassessing securities lending and the cost of claims, changes are needed to enable banks and brokers to provide a more efficient way to offer liquidity, concluded the panelist.