European repo market surpasses pre-crisis levels
15 September 2010 London
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The European Repo Council of the International Capital Market Association (ICMA) today released the results of its 19th semi-annual survey of the European repo market. The survey sets the baseline figure for market size at EUR 6,979 billion representing an increase of 25% on the figure of EUR 5,582 billion for the previous survey in December 2009. This figure takes the size of the market above the previous highest figure of EUR 6,775 billion recorded in June 2007 before the financial crisis.
The results of the survey confirm the continuing recovery of the European repo market and the underlying trading activity that it supports. The survey is based on returns received from 57 offices of 52 financial groups, mostly banks, including most of the the largest European repo market participants. The aggregate figure for market size masks a very varied picture for participating institutions; some have emerged from the recent financial crisis with unimpaired balance sheets and have been able to exploit their strength in a market where many competitors have been forced to consolidate or even contract, and some have disappeared altogether. These institutions have consequently captured greater market share, as is evident in the growing degree of market concentration, 10 firms in the survey accounted for over 68% of the total repo business, well above the historical norm for the survey which started in June 2001.
The survey also confirms the broader underlying shift towards greater use of Central Clearing Counterparties (CCPs) for repo business. Until recently, access to CCPs was largely restricted to repo business transacted on electronic trading systems. Over the last two years, however, the post-trade registration of transactions negotiated, not electronically, but directly with other parties or through voice-brokers, has become significant. In the latest survey, post-trade registration of direct or voice-brokered repos through CCPs reached 8.7%, which means that the total share of surveyed repo business (electronic and non-electronic) that was cleared across CCPs was 22.4%.
The Chairman of the ICMA's European Repo Council, Godfried de Vidts said: "The increasing share of central clearing in the European repo market shouldn't make us complacent. There are unresolved clearing and settlement issues in a number of markets which continue to create difficulties in the settlement of bilateral trades and also for electronically originated as well as centrally cleared trades in certain jurisdictions. The ERC is keen to see further progress in the clearing and settlement area through regulatory initiatives like EMIR, as proposed by the EU Commission, but also through continuous work at the ECB chaired COGESI working group."
Other key findings of the survey include:
The market share of electronic repo trading continued to fall back, touching 22.5% compared with 27.5% in December 2009 and a high of 28.5% in June 2009, as the growth in this sector failed to keep pace with the rapid expansion of the overall market. On the other hand, voice-brokers recovered market share, to reach 20.3% from 18.5%.
The market share of both floating-rate and open repos recovered to 10.1% and 6.1% respectively. The share of floating-rate repo traditionally reflects changes in interest rate expectations. Open repos, which are convenient short-term financing tools, were adversely affected by the recent market crisis, so their revival can be interpreted as an indicator of improved confidence.
The results of the survey confirm the continuing recovery of the European repo market and the underlying trading activity that it supports. The survey is based on returns received from 57 offices of 52 financial groups, mostly banks, including most of the the largest European repo market participants. The aggregate figure for market size masks a very varied picture for participating institutions; some have emerged from the recent financial crisis with unimpaired balance sheets and have been able to exploit their strength in a market where many competitors have been forced to consolidate or even contract, and some have disappeared altogether. These institutions have consequently captured greater market share, as is evident in the growing degree of market concentration, 10 firms in the survey accounted for over 68% of the total repo business, well above the historical norm for the survey which started in June 2001.
The survey also confirms the broader underlying shift towards greater use of Central Clearing Counterparties (CCPs) for repo business. Until recently, access to CCPs was largely restricted to repo business transacted on electronic trading systems. Over the last two years, however, the post-trade registration of transactions negotiated, not electronically, but directly with other parties or through voice-brokers, has become significant. In the latest survey, post-trade registration of direct or voice-brokered repos through CCPs reached 8.7%, which means that the total share of surveyed repo business (electronic and non-electronic) that was cleared across CCPs was 22.4%.
The Chairman of the ICMA's European Repo Council, Godfried de Vidts said: "The increasing share of central clearing in the European repo market shouldn't make us complacent. There are unresolved clearing and settlement issues in a number of markets which continue to create difficulties in the settlement of bilateral trades and also for electronically originated as well as centrally cleared trades in certain jurisdictions. The ERC is keen to see further progress in the clearing and settlement area through regulatory initiatives like EMIR, as proposed by the EU Commission, but also through continuous work at the ECB chaired COGESI working group."
Other key findings of the survey include:
The market share of electronic repo trading continued to fall back, touching 22.5% compared with 27.5% in December 2009 and a high of 28.5% in June 2009, as the growth in this sector failed to keep pace with the rapid expansion of the overall market. On the other hand, voice-brokers recovered market share, to reach 20.3% from 18.5%.
The market share of both floating-rate and open repos recovered to 10.1% and 6.1% respectively. The share of floating-rate repo traditionally reflects changes in interest rate expectations. Open repos, which are convenient short-term financing tools, were adversely affected by the recent market crisis, so their revival can be interpreted as an indicator of improved confidence.
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