The International Capital Market Association yesterday released the results of its semi-annual survey of the European repo market.
The survey, which is effectively a snapshot of the volume of repo trades outstanding on a single day in June, before the current market difficulties took hold, sets the baseline figure for market size at 6,775 billion a 15 percent increase, year on year from June 2006. The larger part of this growth was registered during the second half of 2006, with growth flattening in the first half of 2007 probably reflecting market expectations of rising official interest rates.
This latest survey also shows that the share of trading in the repo market through electronic trading system returned to 21.9 percent, close to the level reported for June 2006. This is interpreted as the expected rebalancing of the spike in market share for this sector reported in December 2006.
However, the share of the electronic repo market settled through a central clearing counterparty (and traded anonymously) also fell back sharply to 10.3 percent in the June survey. This probably reflects differences between the distribution of electronic trading in the survey sample compared to the market at large, ICMA reports.
The market share of triparty repo, where the collateral is held by a third-party agent, reducing the administrative burden and also the counterparty risk of the transaction, reached a record high of 11.8 percent.
“The repo market has seen outstanding growth in past years due to the low interest regulatory and governmental authorities, both at the national and supranational level, to ensure that financial regulation promotes theefficiency and cost effectiveness of the capital market,” says Godfried DeVidts, chairman of ICMA’s European Repo Council.
ICMA represents a broad range of capital market interests, including global investment banks and smaller regional banks, as well as asset managers, exchanges, central banks, law firms and other professional advisers, making it an influential voice for the global market.