State Street processes $140 billion of client-cleared repo transactions

State Street expects buy-side clearing of repo financing to increase significantly among mutual funds and money markets funds in the US.

By Joe Parsons

State Street has sponsored a record $140 billion in cleared repo trades, and expects further substantial growth in cleared repo financing.

The record comes as a result of its joint sponsored member repo programme with the Fixed Incoming Clearing Corporation (FICC), the fixed income arm of DTCC, whereby a bank netting member could sponsor eligible US mutual funds to clear their repo trades with FICC.

Recent rule changes in the US over the past two years have permitted additional sponsoring and sponsored client types, including prime brokers, non-US banks and money market funds, which has led to a significant rise in aggregate cleared repo and reverse repo volumes.

“The growth in sponsored member repo through FICC has been transformational in the actively managed cash marketplace, providing cash investors and cash borrowers critical and stable liquidity,” said Gino Timperio, head of funding and collateral transformation, State Street.

“I believe we’re in the early stages of a sustained growth trajectory, from which our clients and the overall market will continue to benefit.”

State Street has been one of the leading bank participants for a range of FICC initiatives aimed at boosting liquidity in the fixed income and repo financing market.

In 2018, State Street acted as the sponsoring bank for Capula Investment Management to be the first asset manager to provide collateral for cleared repo through FICC.

“UBS was an early adopter of Sponsored Repo [with State Street],” says Rob Sabatino, head of liquidity investments, UBS Asset Management.

“The growth of sponsored repo volumes within FICC highlights demand from both cash investors and borrowers for a highly efficient, centrally cleared solution and I anticipate the next wave of growth will be from corporations, local government investment pools, and offshore entities managing US dollars.”