The International Capital Market Association’s latest review of the European repo market is out, and there are some interesting findings to say the least.
Chief amongst them is the fact that European repo markets have recovered almost fully from their Lehman crisis setback, notching up a baseline market size of about €6,979bn — an increase of 25 per cent on the previous survey, conducted in December 2009.
It’s worth pointing out that ICMA’s report is the only official survey of the European repo market, which remains hugely opaque due to its over-the-counter and bilateral nature. As ICMA’s European Repo Council noted:
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.
Meanwhile, the significant post-Lehman inroads made by electronic repo trading platforms like Eurex, whilst still growing, have seen their market share fall back to 22.5 per cent versus 27.5 per cent in December 2009.
This was the overall breakdown of ICMA’s counteparty analysis:
ICMA says that’s largely because the growth in the sector failed to keep pace with the rapid expansion of the overall market.
Also noteworthy is the following geographical breakdown of activity, given recent reports of some high-profile banks seeking access to cross-border CCP repo markets for the first time:
The other notable finding from the report is that market share for both floating-rate and open repos has recovered, coming in at 10.1 per cent and 6.1 per cent respectively.
Open repos are those that do not have a specified duration and can be terminated at any time. Floating-rate repos adjust according to changes in the base rate.
Which may or may not be linked to the Bank of England adopting a new floating long-term repo regime from June 15.
As Reuters reported in May, the move was designed to deter market participants from using central bank repo operations for interest rate speculation.
But according to ICMA, the share of floating-rate repo can also reflect changes in interest rate expectations.
Open repos, meanwhile, can be a convenient short-term financing tool. Since these instruments were adversely affected by the recent market crisis, ICMA says their revival can be interpreted as an indicator of improved confidence.
You can read the full report here.
As an aside, we noticed that EFG Eurobank, HSBC France, and ING Bank didn’t participate in the survey this time round, despite a good track record in doing so thus far.
Related links:
Bunds are the new Treasuries, when they want to be – FT Alphaville
Euribor has been vaporised – FT Alphaville
Developments in repo markets during the financial turmoil – BIS
Frozen in the Greek repo markets – FT Alphaville