ICMA European Repo Council (ERC) General Meeting 16 October 2013
Opening Remarks Godfried De Vidts, Chairman, European Repo Committee
Market infrastructures » Key challenges and opportunities for the integration of European financial market infrastructures • Tri-party Interoperability MOU – Euroclear/Clearstream/Eurex Clearing – ERC as guardian. What’s next? • Report on efficient functioning of the repo market. • EBF/ERC work on commercial bank money efficiencies. • ECB Collateral Video
Secured benchmarks » Eurepo » Questionnaire on the use of the Eurepo benchmark 1. Limited activity linked to the Eurepo fixing. 2. Even though most agreed that the Eurepo fixing could be discontinued, they also said that it should be maintained until a reliable alternative - representing the entire curve and reflecting the ‘European’ market – is in place. 3. What is the ideal repo benchmark? » Meeting with ERC Working Group & Eurepo Steering Committee
Avoiding counterproductive regulation in capital markets » ICMA paper: Avoiding Counterproductive Regulation in Capital Markets – a reality check • Explanation of the impact of current and forthcoming regulatory changes on the ability of European fixed income and repo markets to help lubricate and sustain economic recovery and growth. • In relation to repo, the paper will cover key concerns: • FTT • Basel Committee on Banking Supervision (BCBS) leverage ratio requirements • CSDR mandatory buy-in proposal • FSB consultation on mandatory minimum haircuts for repos • Reports on asset encumbrance by the European Banking Authority (EBA) and the BIS Committee on the Global Financial System (CGFS) • MiFID 2
Fire sales of collateral » FRBNY Workshop on Fire Sales as a Driver of Systemic Risk in Tri-Party Repo and other Secured Funding Markets on 4 October 2013 » This was about the particular challenges of US tri-party repo market » US tri-party repo is very different from European tri-party repo » “Two markets separated by a common terminology” (Apologies to Winston Churchill) » The challenge to the FSB: to design a global solution to a regionally and nationally- segmented marketplace » The challenge to the media: to provide global commentary on regionally and nationally- segmented markets » The challenge to the repo market: to educate and inform policy-makers, regulators, academics and the media
Approval of the minutes of the ERC Annual General Meeting held on 11 March 2013 in Paris
European Repo Council 25 th ICMA European repo market survey conducted in June 2013 Richard Comotto, Senior Visiting Fellow, ICMA Centre
Who and when » Outstanding value of contracts at close of business on Wednesday, 12 th June 2013 » 65 responses from 61 groups
Headline Numbers » June 2013 EUR 6,076 billion » December 2012 EUR 5,611 billion » June 2012 EUR 5,647 billion » December 2011 EUR 6,204 billion » June 2011 EUR 6,124 billion » December 2010 EUR 5,908 billion » June 2010 EUR 6,979 billion » December 2009 EUR 5,582 billion » June 2009 EUR 4,868 billion » December 2008 EUR 4,633 billion » June 2008 EUR 6,504 billion » December 2007 EUR 6,382 billion » June 2007 EUR 6,775 billion » December 2006 EUR 6,430 billion
Headline Numbers Lehman LTRO EUR 6,076 bn
US headline numbers Lehman 8,000 7,000 6,000 USD 5,000 4,927 bn USD billion 4,000 US primary dealers 3,000 (source: FRBNY) 2,000 1,000 0
Comparable market growth rates » 57 respondents participating in last 3 surveys +8.6% since December 2012 +2.1% year-on-year
Trading analysis automatic trading system bilaterally-negotiated includes GC Pooling by phone or EM bilaterally/tri-party/CCP-settled bilaterally-settled bilaterally-negotiated by phone or EM tri-party-settled arranged by voice-broker bilaterally-settled
Trading analysis Lehman LTRO
Trading analysis (directly-reported by providers) Lehman LTRO
Trading analysis (directly-reported by providers) Lehman LTRO
Geographical analysis ATS via CCP from reporting bank cross-border to a(nother) from reporting bank eurozone counterparty cross-border to a non-eurozone counterparty
Geographical analysis Lehman LTRO
Geographical analysis Lehman LTRO
Geographical analysis Lehman LTRO
Geographical analysis Lehman LTRO
Business cleared across CCP LTRO Lehman
Anonymous ATS business Lehman LTRO
Currency analysis
Currency analysis Lehman LTRO
Collateral analysis
Collateral analysis Lehman LTRO
Collateral analysis Lehman LTRO 40% 35% 30% DE 25% IT FR 20% BE 15% ES GR 10% other EUR 5% 0% Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
Collateral analysis EU non- govis 19.9% EU govis 80.1%
Collateral analysis Lehman LTRO
Collateral comparison EU non- govis 19.9% EU govis 48.1% EU non- govis 51.9% EU govis 80.1% banks tri-party
Collateral analysis (tri-party) Lehman LTRO
Collateral analysis (tri-party) Lehman LTRO 20% 18% 16% German govis 14% French govis 12% other core 10% 8% pfandbrief 6% 4% 2% 0% Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
Collateral analysis (tri-party) LTRO Lehman 20% 18% 16% Italian govis 14% Spanish govis 12% other peripheral 10% 8% 6% 4% 2% 0% Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12
Collateral analysis (tri-party) 50% 45% 40% 35% 30% Dec-12 25% Jun-13 20% 15% 10% 5% 0% AAA AA A BBB subBBB A1/P1 A2/P2 NP unrated
Collateral analysis (tri-party Dec-09 to Jun-13) 60% 50% 40% 30% 20% 10% 0% AAA AA A BBB subBBB NP unrated A1/P1 A2/P2
Collateral analysis (tri-party Dec-09 to Jun-13) LTRO 60% 50% 40% 30% AAA 20% AA 10% A BBB 0% Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13
Collateral analysis (tri-party Dec-09 to Jun-13) 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% government public & sub supranational corporate covered M/ABS equity
Collateral analysis (tri-party Dec-09 to Jun-13) LTRO 50% 45% 40% 35% 30% government 25% public & sub 20% supranational 15% corporate 10% covered 5% M/ABS 0% equity Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13
Maturity analysis short dates = 57.2%
Maturity analysis 10% 20% 30% 40% 50% 60% 70% 80% 0% Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Lehman Jun-08 Jun-09 Jun-10 Jun-11 LTRO Jun-12 Jun-13 forward 1M+ SD+open
10% 20% 30% 40% 50% 60% 70% 80% Maturity analysis 0% Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Lehman Jun-08 Jun-09 Jun-10 Jun-11 LTRO Jun-12 Jun-13 6M+ 1-6M SD + open
10% 15% 20% 25% 30% 35% Maturity analysis 0% 5% Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Lehman Jun-08 Jun-09 Jun-10 Jun-11 LTRO Jun-12 Jun-13 open 1W-1M 2D-1W 1D
Maturity comparison 60% banks 50% tri-party 40% 30% 20% 10% 0% D n W M M M M d f e 1 1 3 6 6 1 - p d + o f
Maturity comparison 90% ATS 80% voice broker 70% 60% 50% 40% 30% 20% 10% 0% 1D 1W 1M 3M 6M +6M fd-fd open
Rate analysis
Rate analysis Lehman LTRO
Rate analysis Lehman LTRO
Product analysis lending 10.4% repo 89.6%
Product analysis 100% 10% 20% 30% 40% 50% 60% 70% 80% 90% 0% Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Lehman Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 LTRO Dec-11 Dec-12 SL repo
Concentration analysis Lehman LTRO
Next survey » Wednesday, 11 th December 2013
European Repo Council Guide to Best Practice in the International Repo Market Richard Comotto, Senior Visiting Fellow, ICMA Centre
Purpose » To promote an orderly, safer & efficient market, by harmonising practice at the highest standard & reducing scope for uncertainty or disagreement » To provide guidance on specific issues beyond the scope of the GMRA » To provide a focus for future discussion on best practice » To consolidate disparate pieces of ICMA/ERC guidance & incorporate updates » It will change over time --- check date of version
Purpose » Guide is not a Code of Conduct but should complement Codes » Parties free to agree other terms but need to recognise risks to which they may expose themselves as a result » Market focus is trading & post-trade conventions in the international (cross-border) repo market » Primary geographical focus is Europe but should be applicable globally » Primary counterparty focus is ICMA members but others are encouraged to apply the Guide
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