ICMA publishes guide on Australia’s growing repo market
30 October 2024 Australia
Image: NasimHC/stock.adobe.com
Australia possesses a well-established repo market in government and other fixed income securities, according to the International Capital Market Association (ICMA).
In its recently published ‘Guide to Asia Pacific Repo Markets: Australia’, the association reports that the outstanding size of repo grew by about 75 per cent over the past three years — from around AU$200 billion (US$131.5 billion) at the end of 2021 to about AU$350 billion by the middle of 2024.
The reason is likely to have been a boost to bond and repo trading driven by expectations of lower bond yields, following the introduction of new monetary policy measures in response to the Covid-19 shock in 2020, ICMA adds.
One of the strengths of the Australian repo market is that its core is securities-driven, although most repos trade at the general collateral or GC repo rate, the report indicates.
“This means that the repo market in Australia supports not only the underlying cash market in bonds but also fosters liquidity in both OTC and exchange-traded derivatives. The cash and derivatives markets, in turn, support the repo market by providing collateral securities and generating demand for repo,” ICMA adds.
The growth of both the cash and repo markets has led to a discussion about the need for a central counterparty (CCP) in Australia to mitigate systemic risk and enhance market efficiency.
This guide is the seventh in a series of reports on individual APAC domestic repo markets that ICMA is publishing to promote the development of repo markets around the world. It covers market infrastructure, types of repo and collateral, market participants, as well as legal and regulatory framework.
In its recently published ‘Guide to Asia Pacific Repo Markets: Australia’, the association reports that the outstanding size of repo grew by about 75 per cent over the past three years — from around AU$200 billion (US$131.5 billion) at the end of 2021 to about AU$350 billion by the middle of 2024.
The reason is likely to have been a boost to bond and repo trading driven by expectations of lower bond yields, following the introduction of new monetary policy measures in response to the Covid-19 shock in 2020, ICMA adds.
One of the strengths of the Australian repo market is that its core is securities-driven, although most repos trade at the general collateral or GC repo rate, the report indicates.
“This means that the repo market in Australia supports not only the underlying cash market in bonds but also fosters liquidity in both OTC and exchange-traded derivatives. The cash and derivatives markets, in turn, support the repo market by providing collateral securities and generating demand for repo,” ICMA adds.
The growth of both the cash and repo markets has led to a discussion about the need for a central counterparty (CCP) in Australia to mitigate systemic risk and enhance market efficiency.
This guide is the seventh in a series of reports on individual APAC domestic repo markets that ICMA is publishing to promote the development of repo markets around the world. It covers market infrastructure, types of repo and collateral, market participants, as well as legal and regulatory framework.
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