The latest semi-annual survey of the European repo market by the International Capital Market Association (ICMA), has set the baseline figure for market size at EUR5,608 billion, broadly unchanged from the June 2015 survey figure of EUR5,612 billion.
The survey calculates the amount of repo business outstanding on 9 December 2015 from the returns of 72 offices of 68 financial groups, mainly banks,
The relative stability of outstandings between the two surveys is down to the expansion of non-EU banks' European repo books. Meanwhile, the study notes a decline in the activity of G-SIFIs (Global Systemically Important Financial Institutions), the banks most intensely impacted by new regulation.
The reduction in repo activity from its pre-crisis highs is widely attributed to the impact of new regulation, which banks have been implementing ahead of the official schedules. Most major banks already conform to the new liquidity and leverage regulations, although there is some uncertainty still about the precise impact of the Net Stable Funding Ratio (NSFR).
At the same time, an underlying shift from unsecured markets which predated the crisis has accelerated, in part, due to other new regulations, such as the mandatory collateralisation of OTC derivatives. The broad movement into collateralised transactions is bringing in banks which had previously no reason to use repo, as well as new types of participant, particularly non-bank financial institutions.
Godfried De Vidts (pictured), Chair of ICMA’s ERCC, says: “This 30th European repo market survey is a continuation of ICMA ERCC’s commitment to providing authoritative data on secured repo/triparty markets. Given this long experience in collecting and interpreting data, we recommend caution with the forthcoming EU Securities Financing Transactions (SFT) Regulation. The authorities would be wise to start with carefully designed, clear and simple data requests. Inappropriate interpretations of data could result in mistaken policy interventions, so care is needed to evolve robust processes based on practical experience. We will continue our data collection, given the wealth of historical data captured in this 15 year survey series.”