IMN Austin: triparty change calling
28 January 2014 Austin
Image: Shutterstock
Investors must take a more proactive approach to understand and manage their risks, with triparty repo change around the corner, said panellists at the IMN conference.
A panel on triparty repo reforms took attendees of the 20th Beneficial Owners' International Securities Lending Conference back to 1917, when the Federal Reserve created the repo market.
However, excitement in the repo market rally took place more than 60 years later. In 1982, Drysdale Government Securities missed a $297 million margin call after trading with accrued interest, and Lombard Wall also lost $250 million. Two years later, US Congress exempted repos from bankruptcy stays. Then in 2008, Bear Sterns and Lehman Brothers failed.
The Financial Stability Board council in April 2013 expressed concern about vulnerabilities in triparty repo markets, and panellists said that steps were being taken to rectify this.
Vic Chakrian of the Federal Reserve Bank of New York said that in the past year, major technology milestones have been implemented by clearing banks.
The Securities Industry and Financial Markets Association and the Federal Reserve Bank of New York's Treasury Market Practices Group have published best practices, which Chakrian said resulted in behaviour changes in trading practices. But he admitted that dealers continue to make slow and uneven progress towards tenor of books.
Most importantly, said Chakrian, risk reduction milestones have been achieved, resulting in $1.4 trillion, or 80 percent of clearing bank intraday credit risk reduction.
The panel was concluded with the agreed statement that both investors and their custodians need to know clearing bank timelines, technology changes, new settlement processes, updated legal agreements, and the impact that all of this will have on investors' current processing.
A panel on triparty repo reforms took attendees of the 20th Beneficial Owners' International Securities Lending Conference back to 1917, when the Federal Reserve created the repo market.
However, excitement in the repo market rally took place more than 60 years later. In 1982, Drysdale Government Securities missed a $297 million margin call after trading with accrued interest, and Lombard Wall also lost $250 million. Two years later, US Congress exempted repos from bankruptcy stays. Then in 2008, Bear Sterns and Lehman Brothers failed.
The Financial Stability Board council in April 2013 expressed concern about vulnerabilities in triparty repo markets, and panellists said that steps were being taken to rectify this.
Vic Chakrian of the Federal Reserve Bank of New York said that in the past year, major technology milestones have been implemented by clearing banks.
The Securities Industry and Financial Markets Association and the Federal Reserve Bank of New York's Treasury Market Practices Group have published best practices, which Chakrian said resulted in behaviour changes in trading practices. But he admitted that dealers continue to make slow and uneven progress towards tenor of books.
Most importantly, said Chakrian, risk reduction milestones have been achieved, resulting in $1.4 trillion, or 80 percent of clearing bank intraday credit risk reduction.
The panel was concluded with the agreed statement that both investors and their custodians need to know clearing bank timelines, technology changes, new settlement processes, updated legal agreements, and the impact that all of this will have on investors' current processing.
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