Total repo contract value outstanding on the books of firms responding to the latest European Repo and Collateral Council (ERCC) survey has grown to a record €9,198 billion, an 11 per cent rise YoY and a 5.4 per cent increase on the €8,726 billion figure recorded in the preceding June 2021 survey.
The European Repo Market Survey was conducted across 57 reporting institutions in Europe and is a point in time measure, reflecting the value and breakdown of repo and reverse repo contracts that were outstanding at close of trading on 8 December 2021.
Conducted every six months in June and December, this latest European Repo Survey is the forty-second to be conducted by the ERCC, now part of the International Capital Market Association (ICMA), since the survey was launched in June 2000.
While the total value of all outstanding repo and reverse repos climbed 5.4 per cent since the June survey, the ERCC notes that the European market, as measured by Securities Financing Transactions Regulation (SFTR) data, contracted by 5.9 per cent over the same period.
Noting that the ERCC survey sample constitutes Europe’s largest dealers, the report suggests that the difference in trends indicates that interdealer activity outperformed the remainder of the repo market.
Growth of voice-brokered repo transactions has outpaced that for repo traded electronically on the principal automatic repo trading systems since the last survey — a likely indicator of a shift to OTC repo, the survey finds.
Specifically, the percentage of aggregate repo trades conducted through voice-brokered channels rose from 8.3 per cent in June 2021 to 9.6 per cent in December 2021, while the percentage conducted via ATS fell from 27.5 to 26.8 per cent over the same time period.
In terms of turnover, automated electronic trading contracted 2.1 per cent to an average daily value (ADV) of €560 million in the six months to 8 December 2021 and the number of transactions fell by 15.6 per cent.
For automated repo trading systems, or request-for-quote (RFQ) systems, Tradeweb data indicates a 5.0 per cent contraction in average daily turnover for H2 2021 compared with H1 2021 and a decline of 7.8 per cent in the value of outstanding repos during the 12 months of 2021. The ERCC notes that these automated repo trading systems are predominantly used to support dealer-to-client business, whereas automatic systems primarily execute interdealer activity.
The share of aggregate repo and reverse repo trades conducted through tri-party repo increased from 8.0 per cent in the June survey to 8.6 per cent in the latest December survey. However, the report finds that the outstanding value of all tri-party business reported separately by five main tri-party agents, namely BNY Mellon, Clearstream, Euroclear, JP Morgan and SIS, remained almost unchanged at €670.8 billion and this would have been lower, but for significant tri-party activity of global custodians.
The share of tri-party repo driven by GC financing activities — electronic markets for centrally cleared tri-party repo trades — continued to rise, with outstanding repo value on these platforms jumping by 8.1 per cent to €78.4 billion between June and December 2021.
The report finds that the percentage of repo and reverse-repo trades cleared through a central counterparty has continued to decline, extending a fluctuating downward trend that has been in evidence since June 2016. In the latest survey, the share of anonymous (CCP-cleared) repo trading contracted to 17.2 per cent, down from 17.9 per cent in the June 2021 survey and well below the 25 per cent high point attained in 2013.
In evaluating collateral type delivered against repo transactions, ERCC indicates that the share of German (up from 14.8 to 16.5 per cent) and US government (up from 8.7 to 10.4 per cent) securities rose in the Dec survey, with more moderate increases also recorded for French (up from 13.2 to 13.7 per cent) and Japanese securities (up from 3.5 to 3.9 per cent).
For tri-party repo managed by the ICSDs, the allocation of French, German, Italian, UK and US govvies increased sharply, with UK gilts providing the largest single share of the tri-party collateral pool.
