“There appears to be a divide between geographical location and the uptake on sponsored repo models”, according to Nancy Allen, assistant vice president, financing solutions business development, at State Street.
As a panellist at this year’s Securities Finance Technology Symposium in London, Allen indicated that sponsored models in the repo market are well developed in the US, but questioned whether Europe and the UK were seeing the same uptake.
Sponsored repo is a transaction in which a dealer sponsors non-dealer counterparties onto a central clearing entity such as the Fixed Income Clearing Corporation’s (FICC’s) cleared repo platform — a system that matches and nets repo trades in US government debt.
These models are a “large part of the market” and “continue to grow”, Allen added. The Depository Trust & Clearing Coporation’s (DTCC’s) FICC platform has seen increased market uptake from multiple participants, she said, including from those that it “wouldn’t normally expect to see in the space”, such as hedge funds.
This is a consequence of the new opportunities being presented to new clients, Allen explained, that are providing for their firms and cash management solutions.
Darren Crowther, general manager, Securities Finance and Collateral Management (SFCM) at Broadridge, confirmed that his company has completed, or is in the process of onboarding, approximately 13 clients for sponsored repo services in the past four years. Clients are participating in this service for collateral allocation or matching, and with the aim of connecting to the FICC platform.
He continued: “We are currently onboarding more clients to cleared and sponsored securities finance in the US and starting to work with clients to bring them onboard to similar international offerings. We are constantly reviewing how we can be more interoperable with front-end systems, such as State Street’s sponsored repo platform Venturi, and CCPs such as FICC and Cboe.”
During the panel, entitled ‘Time for Change: The Future State of the Repo Markets - Where Do We Go From Here?’, Allen asked: “How are solutions and service providers able to work together to provide improved interoperability within the market so that these alternative repo solutions can take a hold within the repo market as a whole?”
Continuing the discussion, Allen highlighted that clients view Peer-to-Peer (P2P) solutions as an alternative solution to the traditional repo solutions that they have in place with their counterparties. From a global perspective, she said that P2P solutions need to be able to work globally, and be compatible with the US dollar, sterling and euro.”
As vendors continue to collaborate to provide joint solutions, Crowther stated that a number of clients believe the P2P model is part of the future set of non-traditional securities finance trade types and suggested that to get there “we need to build and make the market more interoperable”.
Reviewing the repo market in its entirety, Richard Comotto, co-founder and chief product officer at London Reporting House, said the market has seen rapid growth since 2015, as measured by the International Capital Market Association’s (ICMA’s) repo survey.
“We are approaching rates of 20 per cent a year, which is what we saw prior to the global financial crisis,” he added. However, “this year there are indications that there may be a deceleration, particularly regarding Q3 2023, but this won’t be confirmed until the end of the year”.
“The unwinding of targeted longer-term refinancing operations (TLTRO) has forced peripherals back into the market. There is also a reduction in the European Central Bank (ECB) remuneration rate for non-monetary official deposits. Market participants are having to put their money somewhere and the repo market has been the market of first choice. To an extent, that inflow of new money has offset the effect of QT,” Comotto confirmed.
He concludes: “So far it has been a great year for repo, with new customers and new cash. Although optimistic, is that running out of steam?”
