Repo markets growth continues, according to ESMA
20 March 2018 Paris
Image: Shutterstock
Average euro area sovereign repo rates remained unchanged at -0.5 percent in 2017 and with very limited dispersion, although seasonal volatility persisted, according to the European Securities and Markets Authority (ESMA).
The authority, which published the results on 20 March, stated that rates reiterated the sharp end-of-year drop already witnessed in 2016, although low trading volumes on the last trading day of the year might have reinforced the movement.
Securities lending activity in EU equities increased, with an average €179 billion on loan in H2 2017, up 3 percent from the same period a year earlier.
However, equity utilisation rates decreased compared to H1 2017 as inventory levels continued to rise.
Notably, the global inventory of lendable exchange-traded funds (ETFs) has doubled in the last three years, to €200 billion.
While the share of European ETF lending activity remains limited (around €3 billion or 10 percent of global ETF value on loan), it has been rising in recent years, reflecting the growth of the industry.
ESMA said the collateral scarcity premium edged up in H2 2017 and peaked at the end of the year, signalling the return of local tensions in collateral availability.
Directly related to this, centrally cleared sovereign repo market volumes grew substantially in 2H17, averaging more than €200 billion per day, this is up more than 30 percent year-on-year.
Recent market reports confirm the robust growth of repo market volumes and a relative decline in the share of general collateral financing trades, it added.
In H2 2017, three Indian central counterparties (CCPs) were added to the list of third-country central counterparties recognised to offer services and activities in the EU, said ESMA.
This brings the number of third-country CCPs recognised in the EU to 32 entities.
Central clearing remained on its long-term upward trend in H2 2017. Overnight index swap (OIS) clearing rose from 90 percent at the end of H1 2017 to 93 percent in December, while the share of cleared basis swaps and forward rate agreements remained broadly stable at a high level (78 percent and 96 percent, respectively).
The proportion of centrally cleared regular swaps climbed from 79 percent in June to 83 percent at the end of 2017, said ESMA.
Clearing rates recovered for all instruments (except basis swaps) from their mid-February slump, possibly reflecting concerns over participants’ capacity to meet the 1 March 2017 deadline for mandatory variation margining on non-cleared derivatives.
Based on daily trading volumes, the share of centrally cleared credit default swap contracts climbed to 86 percent at the end of September 2017, up from 80 percent at the end of June, and well above the five-year moving average.
The authority, which published the results on 20 March, stated that rates reiterated the sharp end-of-year drop already witnessed in 2016, although low trading volumes on the last trading day of the year might have reinforced the movement.
Securities lending activity in EU equities increased, with an average €179 billion on loan in H2 2017, up 3 percent from the same period a year earlier.
However, equity utilisation rates decreased compared to H1 2017 as inventory levels continued to rise.
Notably, the global inventory of lendable exchange-traded funds (ETFs) has doubled in the last three years, to €200 billion.
While the share of European ETF lending activity remains limited (around €3 billion or 10 percent of global ETF value on loan), it has been rising in recent years, reflecting the growth of the industry.
ESMA said the collateral scarcity premium edged up in H2 2017 and peaked at the end of the year, signalling the return of local tensions in collateral availability.
Directly related to this, centrally cleared sovereign repo market volumes grew substantially in 2H17, averaging more than €200 billion per day, this is up more than 30 percent year-on-year.
Recent market reports confirm the robust growth of repo market volumes and a relative decline in the share of general collateral financing trades, it added.
In H2 2017, three Indian central counterparties (CCPs) were added to the list of third-country central counterparties recognised to offer services and activities in the EU, said ESMA.
This brings the number of third-country CCPs recognised in the EU to 32 entities.
Central clearing remained on its long-term upward trend in H2 2017. Overnight index swap (OIS) clearing rose from 90 percent at the end of H1 2017 to 93 percent in December, while the share of cleared basis swaps and forward rate agreements remained broadly stable at a high level (78 percent and 96 percent, respectively).
The proportion of centrally cleared regular swaps climbed from 79 percent in June to 83 percent at the end of 2017, said ESMA.
Clearing rates recovered for all instruments (except basis swaps) from their mid-February slump, possibly reflecting concerns over participants’ capacity to meet the 1 March 2017 deadline for mandatory variation margining on non-cleared derivatives.
Based on daily trading volumes, the share of centrally cleared credit default swap contracts climbed to 86 percent at the end of September 2017, up from 80 percent at the end of June, and well above the five-year moving average.
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