Eurex has expanded its model for buy-side firms to directly clear their European repo trades to a wider range of firms, including hedge funds.
Through Eurex’s ISA Direct model, these new buy-side firms and their counterparty dealing banks will now be able to benefit from new capital and risk management advantages by directly clearing repo with the German market infrastructure provider.
The move brings European hedge funds in line with their US counterparts, which have been able to participate in sponsored repo programmes operated by the Fixed Income Clearing Corporation (FICC).
In this model, hedge funds are able pair government bonds with money-market funds willing to lend cash, with a banking counterpart acting as the middleman guaranteeing that the parties involved will fulfil their obligations. It also removes the risk of transacting directly through bilateral trades and broadens liquidity for buy-side firms.
According to Eurex, giving a greater range of market participants – including hedge funds – direct clearing house access will deliver tangible efficiencies to those involved. Stable cleared repo markets will also support broader financial stability and monetary policy transmission objectives.
Earlier this year, UK clearing house LCH also expanded its repo clearing model to accept regulated investment funds as sponsored members of RepoClear, enabling a greater range of pension funds to directly access these services.
In April 2020, LCH brought on BNY Mellon as a custodian member for its sponsored clearing service to further drive buy-side adoption.
Meanwhile, Eurex Clearing announced it would wind down its securities lending service following muted volumes from buy-side firms, forcing the market infrastructure firm to prioritise other activities, such as the cleared repo business.