State Street has sponsored a record $140 billion in repo investment volumes as a result of its partnership with the Fixed Income Clearing Corporation (FICC).
State Street partnered with FICC in 2005 to launch its sponsoring/sponsored member repo programme whereby a bank netting member of the clearing house can sponsor eligible US mutual funds to clear their repos with FICC.
The sponsorship model via a central counterparty permits banks and broker dealers to offer clients more repo investing and financing opportunities in an efficient manner, according to Gino Timperio, head of funding and collateral transformation at State Street.
Timperio explained that this efficiency allows sponsors to intermediate credit limitations of peer-to-peer activity, while helping to realise the benefits of peers’ supply with demand. It also allows sponsors to serve more clients and to do so throughout the calendar cycle, including historically volatile month and quarter ends.
“Money funds now have greater access to a stable supply of repo outside of the Federal Reserve’s recommended retail price (RRP) facility, and we’ve seen RRP volumes decline in step,” Timperio adds.
Other drivers for increased repo activity generally include increased flows into money funds, generally, in light of greater market volatility and the relatively high yields offered by overnight US treasury and agency repo versus the rest of the now inverted yield curve Timperio explained..
Meanwhile, with the evolution of the FICC programme, FICC’s aggregate cleared repo and reverse repo volumes have risen substantially, according to State Street.
Swiss investment bank UBS was among the early adopters of State Street’s sponsored repo programme.
Rob Sabatino, head of liquidity investments at UBS asset management, said: “The growth of sponsored repo volumes within FICC highlights demand from both cash investors and borrowers for a highly efficient, centrally cleared solution and I anticipate the next wave of growth will be from corporations, local government investment pools, and offshore entities managing US dollars.”
