Buy-Siders Increase Triparty Repo Activity, Finds ICMA

Non-bank financial firms, such as pension funds and insurance companies, are increasing activity through triparty repo banks in order to meet certain financing challenges, suggesting a growing acceptance of outsourcing collateral management amongst the buy-side.
By Joe Parsons(2147488729)
Non-bank financial firms, such as pension funds and insurance companies, are increasing activity through triparty repo banks in order to meet certain financing challenges, suggesting a growing acceptance of outsourcing collateral management amongst the buy-side.

Increased activity from buy-side firms in the triparty repo market confirms signs that they are looking to outsource their collateral management.

As a result of new rules on capital levels and collateral, it has placed increased cost pressures on asset managers and pension funds. Regulation has increased their financing needs, and driven them to search for new ways to access higher quality collateral such as European and U.S. government bonds.

According Godfreid De Vidts, chairman of the International Capital Market Association’s (ICMA) European Repo Council and director of European Affairs at ICAP, one way buy-siders are meeting this challenge is through the triparty repo market.

“For non-banks that need financing and use derivatives… which require initial margin, they might not necessarily have the cash flows so they go to the triparty market and get the collateral and financing from a bank through triparty. That’s where we see a shift in the direction of flows in the future,” says De Vidts.

According to the ICMA’s latest survey into the repo market, it showed volumes reported directly by the tri-party agents has grown faster than overall triparty market share, suggesting that new participants are entering the market.

“The overall volume of business that triparty agents are doing has expanded faster than the share of triparty that are sampled, so something is happening,” adds Richard Comotto, senior visiting fellow at the ICMA Centre.

As a result of increased involvement from the buy-side, there is not only greater integration of front-office and back-office desks, but also a growing acceptance of outsourcing collateral management through triparty repo.

“I speak to some buy-siders that might not have a repo desk, they just have a financing desk to make it easier to go through triparty. It is an outsourcing of collateral management,” says De Vidts.

“What we are seeing is non-bank financials are seeking to do more collateralized business, and the easiest way for them to do is that is through triparty, and to outsource their collateral management,” says Comotto.

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