ICMA Updates Best Practice Guide for European Repo Market

ICMA has consolidated best practice guidelines for the trading and settlement of repos to ensure the resilience of the market if another crisis occurs.
By Janet Du Chenne(59204)
The International Capital Markets Association’s (ICMA) European Repo Council has launched it updated guide to best practice in the European repo market, setting out standards for the orderly trading and settlement of repos.

Much repo trading in Europe is between banks in different countries, making it essential to have consistent, internationally recognized standards, says ICMA.

Recent regulatory initiatives encouraging the collateralization of risk, directly through the use of CCPs have further heightened the importance of the €5.5 trillion repo market, which is the place where collateral demand and supply meet.

The updated ERC guide covers the full scope of the repo trading life cycle, including: fixing dates, affirmation and confirmation of transactions, margining, non-standard interest calculations, issuing notices, delivery issues and dealing with negative repo rates.

ICMA ERC Chairman Godfried De Vidts commented that the resiliency of the interbank funding tool despite the general impact of the financial crisis on financial market activity was down to the way repo market participants maintained high standards in they way they conducted their business and settled issues

“They were supported by a robust legal agreement in the form of the GMRA and recommendations on best practice that had been distilled from practical experience over many years,” he says. “The new guide updates and considerably expands those recommendations, to take account of recent experience.

The updated guide seeks to bring global uniformity to industry terms, including U.S. specific terms such as rehypothecation. It also takes account of common themes across different geographic markets, such as the push by the U.S Federal Reserve for the daily unwinding of trades and a similar push by LCH.Clearnet for the same in respect of U.K. gilts transactions.

Additionally, standardizing affirmation in the repo market is seen as a must given that many vendors are producing and offering software to market participants. The guide addresses interoperability among these vendors’ systems.

“There have been huge changes in how we work and how we fulfill the regulatory requirements, although this will probably have changed again in a year,” says De Vidts. “So this was an opportunity to consolidate everything. It’s a housekeeping task in many respects. As we digest regulation into our daily work market practice changes, it’s not so much about preempting new regulation but it’s about ensuring that the repo market is working well and is resilient if another crisis occurs.”

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