GSF: hair-cutting remarks 22 January 2014Luxembourg Reporter: Georgina Lavers
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Bilateral business is attracting repo participants because central counterparty (CCP) haircut policies are too onerous, said a panel of experts at the 18th Global Securities Finance Summit in Luxembourg.
Seemingly in support of this, a survey revealed that more than 90 percent of conference attendees believe that CCP costs are prohibitive to business.
“We’ve seen haircuts of 100 percent applied to buyers and sellers, which was more than the value of the asset being traded,” highlighted Sylvain Bojic of Société Générale, who added that as CCPs are privately owned, “they’re not providing a public service”.
Commerzbank’s Michael Lassmann described CCP costs as “haircuts of the sovereign debt crisis”, suggesting that they could come down in the future.
Repo transactions moving away from CCPs to the bilateral market shows that haircuts are too onerous, said Romain Dumas, managing director in Credit Suisse’s fixed income department. He is also in charge of the government repo desk.
But Dumas added: “The evolution will be it is possible for these haircuts to go down.”
He concluded that short-term repo business may be more suitable for a CCP, while long-term business should be conducted bilaterally.
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