Key takeaways from GFF Summit 2025
04 February 2025
From geopolitical risks to mandatory clearing, Daniel Tison reports on some of the main themes at this year’s conference
Image: stock.adobe.com/Sergio Delle Vedove
With the title ‘Navigating Uncertainty: Geopolitics and Market Dynamics’, this year’s Global Funding and Financing (GFF) Summit aimed to explore the evolving financial landscape amid rising political polarisation and regulatory overhaul.
Hosted in the European Convention Center in Luxembourg, the Deutsche Börse Group’s event brought together industry experts from securities lending, collateral management, and repo to discuss the key themes of 2025.
A lot of work ahead
Central clearing in Europe has been a slow process and there is still a lot of work that needs to be done, according to the ‘Repo dynamics: Adapting to volatile markets’ panel, which brought together representatives from four financial institutions.
While some speakers believe that the clearing mandate will increase balance sheet capacity and support additional liquidity, others highlight the fragmented nature of the European market and the challenges in implementation.
In the US, the Fixed Income Clearing Corporation (FICC), a subsidiary of the Depository Trust and Clearing Corporation (DTCC), operates the Sponsored Repo clearing model, which allows non-bank institutions, such as hedge funds and pension funds, to access centrally-cleared repo transactions, reducing capital requirements.
The lack of a sophisticated money market fund industry in Europe, compared to the US, was cited as a potential obstacle to the smooth integration of new clearing participants.
One panellist noted that the current proposed timeline is unrealistic and that the industry calls for a one-year delay to ensure a more feasible implementation.
The situation in the UK is similar to Europe when it comes to central clearing, the panel heard, with much fragmentation being a major challenge.
The audience had the chance to participate in the discussion by voting in polls, which showed that 69.2 per cent of those present do not expect to see mandatory clearing in Europe by the end of 2026.
Another key focus of the panel was the mounting supply of government bonds.
One panellist expressed concerns about the market's capacity to absorb the US$9 trillion in US Treasury refinancing due this year, alongside the inflationary policies and tariffs, noting the potential for a steep rise in the rates curve.
Panellists discussed the potential impact of quantitative tightening (QT) by central banks, expressing concerns about funding distress as central banks’ balance sheets shrink.
One speaker cautioned that the tightening of monetary policy could lead to funding distress and market dysfunction, drawing parallels to the events of September 2019 — when a sudden liquidity shortage caused repo rates to spike, leading to market instability.
Another participant noted that the leverage community, including hedge funds and banks, has a limited role in absorbing primary market supply because, unlike pension funds and other long-term investors, their strategies often focus on short-term trading and arbitrage.
Rather than purchasing bonds directly as new issuances, leveraged investors prefer trading existing bonds in the secondary market, enabling them to exploit price differences, interest rate movements, and market inefficiencies. However, if demand for new bonds is weak, yields could rise sharply, affecting borrowing costs and market stability.
Regarding emerging markets, the panel highlighted the recent developments in China, with the new option for foreign investors to access Chinese sovereign bonds through Bond Connect. Under the new offshore repo arrangement, Northound Bond Connect participants can also use eligible onshore bonds as collateral to conduct renminbi repo business in Hong Kong.
The evolving role of repo desks was also a topic of discussion, with panellists noting the increasing sophistication of client-facing activities. Repo desks are now engaging in a wider range of services, from providing leverage for futures and bond strategies to facilitating access to local currency and alternative asset classes.
Amid these changes, the panel emphasised the need for new cash providers in the repo market. One speaker suggested that pension funds could lend their operational cash in the repo market, where banks and money market funds have been the main cash providers, to diversify the sources, increase liquidity, and prevent funding stress.
Diverse strategies to face obstacles
Geopolitics and collateral optimisation were at the centre of discussions at the ‘Securities lending: Voices from across the value chain’ panel, where representatives from both the buy and sell sides shared their insights.
The moderator opened the debate by outlining key challenges expected to shape the global securities finance landscape in 2025. These included concerns over inflation and sluggish growth, rising political polarisation and social unrest, as well as the fragmentation of global trade due to protectionism.
He added that market data shows both opportunities and risks arising from the recent political changes — for instance, supply chain disruptions and trade restrictions could create opportunities for securities lending but also expose institutions to increased counterparty risk.
The panel heard that the ongoing impact of geopolitical events on the securities lending market often presents itself through changes to both programme parameters and strategies, as well as online balances and lending values.
On that note, the panel emphasised the importance of diversifying portfolios across countries and asset types to mitigate geopolitical risks. By holding a range of asset classes — equity, fixed income, and alternative assets — investors can better manage the heightened volatility in specific regions.
The discussion also stressed the need to term out financing to avoid short-term vulnerabilities, drawing on lessons from the Russia-Ukraine scenario. Extending the duration of financing agreements helps reduce exposure to sudden changes in market conditions, such as those triggered by geopolitical events or shifts in monetary policies.
On the agency lending side, panellists explained how they are balancing increased risk with client demands for higher returns.
Collateral optimisation strategies emerged as a central focus, with some clients exploring more bespoke trade activities and providers offering full indemnity to protect clients against counterparty risk in case of default. The panellists agreed that managing the quality and liquidity of collateral helps reduce the cost of financing and mitigates counterparty risk.
Sell side participants pointed to a rise in collateral upgrade trades, where lower-quality collateral is exchanged for higher-quality assets to maintain liquidity and satisfy regulatory requirements.
This relates to the growing participation of cash-rich clients, such as money market funds, in collateral optimisation, as these clients can provide higher-quality collateral.
The speakers also identified opportunities in cross-currency trades, where securities are lent in one currency while borrowing in another, as highly beneficial in a volatile market, as they provide additional flexibility and diversification for collateral management.
The discussion also touched on the effects of interest rate volatility and regulatory changes, with panellists sharing their strategies for managing these challenges.
Treasury functions are increasingly focused on anticipating structural shifts and diversifying funding sources. Furthermore, they are implementing more sophisticated hedging strategies, using instruments such as interest rate swaps and bond futures, to manage the financial risks posed by fluctuating rates, the panel heard.
Looking ahead, the panel agreed that adaptability will be crucial in navigating future uncertainties, whether it be the potential impact of US policies under the new administration or broader geopolitical shifts. Additionally, recent developments in emerging markets, such as Latin America, the Middle East, and Southeast Asia, might open up new securities lending avenues.
Hosted in the European Convention Center in Luxembourg, the Deutsche Börse Group’s event brought together industry experts from securities lending, collateral management, and repo to discuss the key themes of 2025.
A lot of work ahead
Central clearing in Europe has been a slow process and there is still a lot of work that needs to be done, according to the ‘Repo dynamics: Adapting to volatile markets’ panel, which brought together representatives from four financial institutions.
While some speakers believe that the clearing mandate will increase balance sheet capacity and support additional liquidity, others highlight the fragmented nature of the European market and the challenges in implementation.
In the US, the Fixed Income Clearing Corporation (FICC), a subsidiary of the Depository Trust and Clearing Corporation (DTCC), operates the Sponsored Repo clearing model, which allows non-bank institutions, such as hedge funds and pension funds, to access centrally-cleared repo transactions, reducing capital requirements.
The lack of a sophisticated money market fund industry in Europe, compared to the US, was cited as a potential obstacle to the smooth integration of new clearing participants.
One panellist noted that the current proposed timeline is unrealistic and that the industry calls for a one-year delay to ensure a more feasible implementation.
The situation in the UK is similar to Europe when it comes to central clearing, the panel heard, with much fragmentation being a major challenge.
The audience had the chance to participate in the discussion by voting in polls, which showed that 69.2 per cent of those present do not expect to see mandatory clearing in Europe by the end of 2026.
Another key focus of the panel was the mounting supply of government bonds.
One panellist expressed concerns about the market's capacity to absorb the US$9 trillion in US Treasury refinancing due this year, alongside the inflationary policies and tariffs, noting the potential for a steep rise in the rates curve.
Panellists discussed the potential impact of quantitative tightening (QT) by central banks, expressing concerns about funding distress as central banks’ balance sheets shrink.
One speaker cautioned that the tightening of monetary policy could lead to funding distress and market dysfunction, drawing parallels to the events of September 2019 — when a sudden liquidity shortage caused repo rates to spike, leading to market instability.
Another participant noted that the leverage community, including hedge funds and banks, has a limited role in absorbing primary market supply because, unlike pension funds and other long-term investors, their strategies often focus on short-term trading and arbitrage.
Rather than purchasing bonds directly as new issuances, leveraged investors prefer trading existing bonds in the secondary market, enabling them to exploit price differences, interest rate movements, and market inefficiencies. However, if demand for new bonds is weak, yields could rise sharply, affecting borrowing costs and market stability.
Regarding emerging markets, the panel highlighted the recent developments in China, with the new option for foreign investors to access Chinese sovereign bonds through Bond Connect. Under the new offshore repo arrangement, Northound Bond Connect participants can also use eligible onshore bonds as collateral to conduct renminbi repo business in Hong Kong.
The evolving role of repo desks was also a topic of discussion, with panellists noting the increasing sophistication of client-facing activities. Repo desks are now engaging in a wider range of services, from providing leverage for futures and bond strategies to facilitating access to local currency and alternative asset classes.
Amid these changes, the panel emphasised the need for new cash providers in the repo market. One speaker suggested that pension funds could lend their operational cash in the repo market, where banks and money market funds have been the main cash providers, to diversify the sources, increase liquidity, and prevent funding stress.
Diverse strategies to face obstacles
Geopolitics and collateral optimisation were at the centre of discussions at the ‘Securities lending: Voices from across the value chain’ panel, where representatives from both the buy and sell sides shared their insights.
The moderator opened the debate by outlining key challenges expected to shape the global securities finance landscape in 2025. These included concerns over inflation and sluggish growth, rising political polarisation and social unrest, as well as the fragmentation of global trade due to protectionism.
He added that market data shows both opportunities and risks arising from the recent political changes — for instance, supply chain disruptions and trade restrictions could create opportunities for securities lending but also expose institutions to increased counterparty risk.
The panel heard that the ongoing impact of geopolitical events on the securities lending market often presents itself through changes to both programme parameters and strategies, as well as online balances and lending values.
On that note, the panel emphasised the importance of diversifying portfolios across countries and asset types to mitigate geopolitical risks. By holding a range of asset classes — equity, fixed income, and alternative assets — investors can better manage the heightened volatility in specific regions.
The discussion also stressed the need to term out financing to avoid short-term vulnerabilities, drawing on lessons from the Russia-Ukraine scenario. Extending the duration of financing agreements helps reduce exposure to sudden changes in market conditions, such as those triggered by geopolitical events or shifts in monetary policies.
On the agency lending side, panellists explained how they are balancing increased risk with client demands for higher returns.
Collateral optimisation strategies emerged as a central focus, with some clients exploring more bespoke trade activities and providers offering full indemnity to protect clients against counterparty risk in case of default. The panellists agreed that managing the quality and liquidity of collateral helps reduce the cost of financing and mitigates counterparty risk.
Sell side participants pointed to a rise in collateral upgrade trades, where lower-quality collateral is exchanged for higher-quality assets to maintain liquidity and satisfy regulatory requirements.
This relates to the growing participation of cash-rich clients, such as money market funds, in collateral optimisation, as these clients can provide higher-quality collateral.
The speakers also identified opportunities in cross-currency trades, where securities are lent in one currency while borrowing in another, as highly beneficial in a volatile market, as they provide additional flexibility and diversification for collateral management.
The discussion also touched on the effects of interest rate volatility and regulatory changes, with panellists sharing their strategies for managing these challenges.
Treasury functions are increasingly focused on anticipating structural shifts and diversifying funding sources. Furthermore, they are implementing more sophisticated hedging strategies, using instruments such as interest rate swaps and bond futures, to manage the financial risks posed by fluctuating rates, the panel heard.
Looking ahead, the panel agreed that adaptability will be crucial in navigating future uncertainties, whether it be the potential impact of US policies under the new administration or broader geopolitical shifts. Additionally, recent developments in emerging markets, such as Latin America, the Middle East, and Southeast Asia, might open up new securities lending avenues.
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