Global Repo Market: Next Stop, Collateral Management

by Joséphine de Chazournes, January 28, 2014
Industry Trends
Global

Abstract

Repo volumes are still lower than their pre-crisis level, with US average daily amount outstanding at US$4.5 trillion (source: SIFMA) and the European just below €5.5 trillion (source: ICMA), and they are on a downward trend. The future of the repo market thus does not seem very bright at first.

Whereas the structure of the US repo market is extremely mature, the European dealer-to-client repo market needs to find its path between the many initiatives that have been recently launched, whether tripartite or bilateral, and whether centrally cleared or not.

Globally there have been strong initiatives to calculate and publish benchmark indices for secured funding with general collateral, with more easily achieved results in the US than in Europe due to the fragmented nature of the European market. 

Meanwhile the myriad of global and regional regulations that have direct or indirect impacts on the Repo market, will have further dramatic chain effects on the overall capital markets ecosystem.

“Repos have been a very technical and segregated area of market participants until recently but are crucial in the collateral management value chain” says Joséphine de Chazournes, Senior Analyst and author of the report. “They represent today an opportunity: market players that have Repo skills can leverage them to offer collateral servicing.”

In this report Celent provides a global update on the recent volumes and market structure developments of the Repo market. We also explain the central role in the collateral management value chain that repos have picked up further to the pre-trade and post-trade market infrastructure changes, and we provide clues on how to leverage the repo skillset in the future infrastructure.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

Introduction

2

Repos on Standby

3

 

Recent Evolution

3

 

Market Structure

4

Repos, the Changing Market Structure, and Collateral Management

7

 

Global Regulations

7

 

Repos in the Collateral Management Value Chain

9

 

The Role of the Buy Side and Corporations

10

The Repo Skillset Should Be Leveraged

12

 

Collateral Management and Transformation

12

 

Buy Side and Corporate Agent Services

13

Conclusion

14

Leveraging Celent’s Expertise

15

 

Support for Financial Institutions

15

 

Support for Vendors

15

Related Celent Research

16

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