The value of transactions outstanding in the European repo market on a single day in June this year was over Euros 6 trillion. The eleventh semi-annual survey of the size of the market by the European Repo Council (ERC) of the International Capital Market Association (ICMA), which providers a snapshot of the volume of repo trades outstanding on a single day in June this year, found market size standing at over EUR 6 trillion, a 15 % increase from June last year.
The total value of repo contracts outstanding on the books of the 79 institutions who participated in the latest survey was EUR 6,019 billion, compared to EUR 5,883 billion in December 2005 and EUR 5,319 billion in June 2005.
ICMA says the survey also provided clear evidence of increased interest in tri-party products, with tri-party repos accounting for a record market share of 11.3%, indicating a period of renewed growth, which will reassure those institutions poised to launch tri-party products in the coming months.
The share of the market transacted on electronic trading systems fell back to 21.4%,corresponding to a decline of 11% in the value of outstanding electronic transactions since December 2005, although this retreat has to be seen in the context of large gains made in the last six months of 2005.
The loss of market share for all intermediated business, both electronic and voice- brokered, was matched by a correspondingly large increase in the market share of repo business negotiated directly between two counterparties, which has risen to 58%.
ICMA says the growth of directly-transacted business at the expense of electronic and voice-brokered business may be explained by increased position-taking in expectation of interest rate rises.
“Growth of repo continues to be unstoppable with the inexorable move to secured financing driven by the capital adequacy requirements of Basel II,” says Godfried De Vidts, Chairman of the ERC. “We are seeing continuous innovation in this lively market increasing the diversity of currencies and collateral, with the addition of emerging market securities, distressed assets, and structured and even more unusual assets to the repo mix.”
The results of the repo survey were presented today at the General Meeting of the European Repo Council in London.
The meeting included presentations by the European Central Bank (ECB) and the European Commission (EC), because developments in the clearing and settlement infrastructure of western Europe were also on the agenda, and the repo market depends on the efficient transfer of collateral, on an intra-day basis, across European borders. “This process is generally seen as well managed due to close co-operation within repo community between users and infrastructure providers,” says an ICMA spokesman. “It could however be streamlined by the introduction of a truly integrated European security settlement infrastructure.”