Figures published today will enable banks dealing in repo to gauge more accurately the size of the market in Europe. In the second in a series of surveys commissioned by the International Securities Market Association (ISMA), the total value of the outstanding repo business of 66 banks is estimated to be equivalent to EUR 2,298 billion.
ISMA’s survey includes most of the largest banks active in Europe’s repo markets, but it is difficult to say precisely how much of the market it covers. The detailed figures obtained do, however, serve to establish a floor for the size of the market and are acknowledged by market participants as the most authoritative analysis so far produced. Whilst the international repo market is one of the largest financial markets in Europe, figures relating to market size before ISMA launched its semi-annual surveys had tended to amount to approximations.
The survey was conducted by the ISMA Centre at the University of Reading in the UK, at the request of the European Repo Council (ERC), a body set up within ISMA’s structure to promote and represent banks active in Europe’s repo markets. Participants were asked for the value of their outstanding repo business at close of business on Wednesday, December 12, 2001 and a breakdown, including information on counterparties, currency and contract maturity.
Repo business shows 28% annualised growth
The total adjusted value of repo contracts outstanding on the books of the banks who participated in the latest survey was EUR 2,298 billion (2,298,000,000,000) compared with EUR 1,863 billion on the books of those taking part in the June survey. 50.4% of outstanding contracts were repos and 49.6% were reverse repos. The growth in the European repo market between the June and December surveys was measured by comparing the business of the banks that participated in both surveys. The aggregate outstanding value of repo contracts at these banks grew by 13% during the intervening six months, equivalent to a compounded annual rate of growth of about 28%.
Counterparty analysis demonstrates shift towards electronic trading
ISMA’s latest survey shows a downward movement in the amount of direct and brokered business, in favour of an increase in repo trading via automated trading systems (ATSs).
Upward trend in cross-border contracts with non-eurozone countries
December’s results show a significant drop in the value of outstanding repo contracts with domestic counterparties and with cross-border counterparties in the eurozone in favour of substantial increases in the value of outstanding contracts with cross-border counterparties outside the eurozone (up from 17.5% in June to 23.6% in December).
Cash currency analysis shows larger share for the euro
76.7% of reported outstanding repo contracts were denominated in euros, 11.2% in sterling and 7.7% in US dollars. This represents an increase since the June survey in the share of euro transactions (up from 73.3%), away from those in US dollars and at the expense of Japanese yen.
Shift towards longer contract maturities
The survey shows a major shift in maturity distribution to beyond seven days. The share of outstanding repo contracts with less than one week remaining to maturity contracted sharply to 31.4% (down from 44.6% in June). The share of contracts with between seven days and one month remaining grew to 23.5% (up from 17.6%) and contracts with more than six months outstanding increased to 17.3% (up from 10.7%).
ISMA’s next European repo market survey is scheduled to take place on Wednesday, June 12, 2002.