EU repo growth stalls, according to ICMA survey
29 September 2015 London
Image: Shutterstock
The European repo market has shrunk by 2.9 percent since June 2014, according to the annual International Capital Market Association (ICMA) survey.
The survey, published by ICMA’s European Repo Council, calculated the amount of repo business outstanding on 10 June 2015 and set the baseline figure for market size at €5.61 billion.
It highlighted a small 2 percent increase from the headline figure of €5.5 billion in December 2014 and a 2.9 percent decline in market size from €5.78 billion recorded in the June 2014 survey.
The survey also noted a further increase in the share of directly-negotiated transactions, which have been increasing since 2012, according to the European Repo Council.
This is presumed to reflect a regulatory-driven shift away from low-margin inter-bank and commoditised transactions, much of which are electronically traded, towards customer and customised business, most of which is directly negotiated.
Domestic repo also continued its long-term decline, probably reflecting the restructuring of the European repo business in the face of regulatory and other challenges.
The share of triparty repo fell back to 10 percent from 10.5 percent and the outstanding value of triparty repo reported directly by the major triparty agents in Europe also contracted.
Together with the drop in the use of general collateral financing facilities, this may reflect a reduced need for funding against a backdrop of continued central bank assistance, according to the European Repo Council.
There was a drop in the share of all government bonds within the pool of EU-originated fixed income collateral reported in the survey to 77 percent from 81.5 percent. This change was driven to some extent by an increase in non-government bond and equity collateral.
It may reflect a focus on higher margin business and is likely to be related to the drop in the share of electronic trading. There was a sharp decline in Japanese collateral and increases in the shares of US and high-quality collateral.
Godfried De Vidts, chairman of the European Repo Council, said: “The stability of the headline figure over the last few surveys does not tell the full story. The repo market in Europe is not growing in line with underlying conditions.”
“Increased bond issuance, extraordinary excess liquidity from long-term refinancing operations and quantitative easing and increasing demand for collateral driven by regulation might reasonably have been expected to produce an increase in repo trading.”
A further qualitative study on repo in Europe will be released in October.
The survey, published by ICMA’s European Repo Council, calculated the amount of repo business outstanding on 10 June 2015 and set the baseline figure for market size at €5.61 billion.
It highlighted a small 2 percent increase from the headline figure of €5.5 billion in December 2014 and a 2.9 percent decline in market size from €5.78 billion recorded in the June 2014 survey.
The survey also noted a further increase in the share of directly-negotiated transactions, which have been increasing since 2012, according to the European Repo Council.
This is presumed to reflect a regulatory-driven shift away from low-margin inter-bank and commoditised transactions, much of which are electronically traded, towards customer and customised business, most of which is directly negotiated.
Domestic repo also continued its long-term decline, probably reflecting the restructuring of the European repo business in the face of regulatory and other challenges.
The share of triparty repo fell back to 10 percent from 10.5 percent and the outstanding value of triparty repo reported directly by the major triparty agents in Europe also contracted.
Together with the drop in the use of general collateral financing facilities, this may reflect a reduced need for funding against a backdrop of continued central bank assistance, according to the European Repo Council.
There was a drop in the share of all government bonds within the pool of EU-originated fixed income collateral reported in the survey to 77 percent from 81.5 percent. This change was driven to some extent by an increase in non-government bond and equity collateral.
It may reflect a focus on higher margin business and is likely to be related to the drop in the share of electronic trading. There was a sharp decline in Japanese collateral and increases in the shares of US and high-quality collateral.
Godfried De Vidts, chairman of the European Repo Council, said: “The stability of the headline figure over the last few surveys does not tell the full story. The repo market in Europe is not growing in line with underlying conditions.”
“Increased bond issuance, extraordinary excess liquidity from long-term refinancing operations and quantitative easing and increasing demand for collateral driven by regulation might reasonably have been expected to produce an increase in repo trading.”
A further qualitative study on repo in Europe will be released in October.
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