ICMA publish repo bible
05 March 2014 London
Image: Shutterstock
ICMA’s European Repo Council (ERC) has launched its updated guide to best practice in the European repo market, which gives practical guidelines for traders and legislators alike.
The central concern, according to ICMA ERC chairman Godfried De Vidts, is the need to create a consistent certainty of execution for a group of markets that are so structurally and legally diverse. De Vidts, speaking during a press briefing on 5 March 2014, said: “The main goal of the guide is to make the market more useable, and allow collateral to become the ‘new cash’.”
The difference between the US and European regulations on repo is stark—with triparty repo transactions making up 70 percent of the US market, where it only comprises 10 percent of Europe’s. This is largely due to the fact that European triparty repo is normally used to manage non-government bonds and equity (although the proportion of government bonds has more than doubled since the financial crisis), whereas US triparty is focused on treasury and agency debt.
Despite the obvious difficulty of presenting universal standards to such a wide variety of markets, the ERC’s guide strives to become, “a living document for an evolving market”, according to Richard Comotto; a visiting fellow at the ICMA Centre, University of Reading and author of the guide.
The security offered by repo has made it an essential interbank funding tool and this has been reflected in the growth of the repo market in Europe over the last 20 years. Although impacted by the effect of the crisis on general financial activity, the latest threshold figure for market size is €5.5 trillion. Recent regulatory initiatives encouraging the collateralisation of risk, directly and through the use of CCPs, have further heightened the importance of the repo market, which is the place where collateral demand and supply meet.
The updated ERC guide covers the full scope of the repo trading life cycle including: fixing dates, affirmation and confirmation of transactions, margining, non-standard interest calculations, issuing notices, delivery issues and dealing with negative repo rates.
De Vidts commented: “The repo market proved uniquely resilient over the course of the financial crisis, in part, because of the high standards that market participants maintained in the way they conducted their business and settled issues, even under very difficult circumstances. They were supported by a robust legal agreement in the form of the GMRA and recommendations on best practice that had been distilled from practical experience over many years.”
“The new guide updates and considerably expands those recommendations, to take account of recent experience. As change in the market shows no sign of slowing down, the new guide will inevitably have to change as well. It is therefore very much a ‘living’ document, which will be continually adapted to evolving market conditions.”
The central concern, according to ICMA ERC chairman Godfried De Vidts, is the need to create a consistent certainty of execution for a group of markets that are so structurally and legally diverse. De Vidts, speaking during a press briefing on 5 March 2014, said: “The main goal of the guide is to make the market more useable, and allow collateral to become the ‘new cash’.”
The difference between the US and European regulations on repo is stark—with triparty repo transactions making up 70 percent of the US market, where it only comprises 10 percent of Europe’s. This is largely due to the fact that European triparty repo is normally used to manage non-government bonds and equity (although the proportion of government bonds has more than doubled since the financial crisis), whereas US triparty is focused on treasury and agency debt.
Despite the obvious difficulty of presenting universal standards to such a wide variety of markets, the ERC’s guide strives to become, “a living document for an evolving market”, according to Richard Comotto; a visiting fellow at the ICMA Centre, University of Reading and author of the guide.
The security offered by repo has made it an essential interbank funding tool and this has been reflected in the growth of the repo market in Europe over the last 20 years. Although impacted by the effect of the crisis on general financial activity, the latest threshold figure for market size is €5.5 trillion. Recent regulatory initiatives encouraging the collateralisation of risk, directly and through the use of CCPs, have further heightened the importance of the repo market, which is the place where collateral demand and supply meet.
The updated ERC guide covers the full scope of the repo trading life cycle including: fixing dates, affirmation and confirmation of transactions, margining, non-standard interest calculations, issuing notices, delivery issues and dealing with negative repo rates.
De Vidts commented: “The repo market proved uniquely resilient over the course of the financial crisis, in part, because of the high standards that market participants maintained in the way they conducted their business and settled issues, even under very difficult circumstances. They were supported by a robust legal agreement in the form of the GMRA and recommendations on best practice that had been distilled from practical experience over many years.”
“The new guide updates and considerably expands those recommendations, to take account of recent experience. As change in the market shows no sign of slowing down, the new guide will inevitably have to change as well. It is therefore very much a ‘living’ document, which will be continually adapted to evolving market conditions.”
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