Finadium’s Rates & Repo North America conference is next week on November 4 and we’re highlighting some of the trending topics and burning issues our attendees can expect to take a deeper dive into. It couldn’t come at a better time as markets the world over adjust to seismic shifts that are both macro and micro.
Tariffs and trade disruptions have spurred a significant, global change in notions of “safe haven” products, and buy-side firms that have traditionally veered to US Treasuries (UST) are now looking for alternatives, choosing for example gold and even bitcoin, said Frank Gast, member of the Management Board at Eurex Repo, who will be speaking on the Key topics on the repo landscape for 2025 panel.
This is also true for “flight to safety” jurisdictions, which are now shifting from US to Europe and Asia, for example Japan, as well as emerging markets, and that’s showing up in both cleared and uncleared repo market flows since the second quarter.
Dealer balance sheets are holding up amid an environment of rising rates and a move back to profitability, while banks are well-capitalized with reasonable balance sheet capacity albeit constrained around reporting dates, which is being managed using term repo.
“We’re witnessing sustained double-digit growth in the European repo market, particularly in the cleared segment,” said Gast, as volumes swell at a time of increased attention on the back of the UST repo clearing mandate and speculation on how impacts will ripple globally.
Model decisions
The road to UST repo clearing is still being paved, but solutions to make clearing access available and scalable are out there, said Ted Leveroni, managing director and global head of Margin Services for BNY Markets, who will be speaking on the “Getting ready for repo clearing – an update on dealers, clients and options” panel.
New access models have been and are continuing to be introduced, each with their own advantages: for dealers that’s about liquidity and balance sheet, while for their clients the onus is on benefits to margin and risk. Dealers that are now analyzing options are doing it from both of those dimensions, while also weighing how that translates to new entrants and products.
Based on industry conversations, most dealers have made some decisions with plans to go after a specific model, he said, however, it’s early days to decide whether that’s going to expand and heavily depends on how exchanges like CME and ICE define plans to launch UST clearing.
At this point, it’s difficult to have a firm and complete decision-set made, said Leveroni, however, most entities need to, if they haven’t already, provide assurances to their clients or prospects that they have a product or a method of access to clearing that they can provide.
There’s been universal concern about the potential legal lift, and he noted that FICC has simplified its sponsored member documentation process and BNY is doing the same with cleared tri-party products. In addition, the development of a done-away model will eliminate the requirement to negotiate and execute sponsorship agreements with each counterparty but retain the ability to trade with all of them.
Clearing consensus
The repo marketplace is coming to a consensus on clearing that was not apparent a year ago, said Colleen Flynn, managing director for Repo & Money Markets at Tradeweb, who will be speaking on the “Reenvisioning repo from front to middle to back office” panel,
The FICC-sponsored model, aka “done with”, is the leader in the room, and is what Tradeweb’s buy- and sell-side clients are used to trading. Transaction volumes are growing significantly month-over-month and Flynn expects that to continue into 2027.
While there are yet concerns about the “done away” model, when the timeline hits, there will be electronic tools in place to make the process easier for all sides of the street, she said, pointing to pre-trade credit checks, which Tradeweb introduced in 2017, that were also a key part of making clearing work for derivatives in the post Dodd-Frank swaps market era.
“If you’re a buy-side user that wants to do a done away model, Tradeweb will be in charge of providing the pre-trade credit check for certainty of clearing,” she said, adding that without this, the done away model could pose challenges.
One of the most drastic evolutions that she has seen in repo markets is the boom in interest for intraday repo. Tradeweb recently executed a ledger-based trade with atomic settlement between a tokenized UST for USDC, outside of traditional market hours, and plans to expand this capability to other products. Flynn noted that “it’s the tokenization part of real-time fixed income instruments that right now seems to be a game changer.”
While not discussed often in the context of repo clearing, we have heard that there could potentially be interest in intraday repo as a route around mandatory clearing mandates as market participants consider alternatives and complements. Meanwhile, question marks around a mandate for sovereign bond clearing in Europe have recently intensified as the Bank of England weighs industry responses for gilts.
View from Europe
Eurex has taken a clear position: a mandate is not the right answer for the EU markets and the preferred route is to incentivize and remove barriers to participation, not regulate: “We do see today more than 50% cleared of repo transactions, mainly in the interdealer market, without the mandate in Europe, so that is quite a big portion already” Gast said. However, the vast majority of buy-side firms do not participate in repo clearing, a result of regulations shutting out UCITS and money market funds and this would need to change along with mandatory haircuts.
Currently, Eurex is seeing more public sector institutions such as central banks, debt management offices and supranationals showing increasing interest in repo clearing too. In addition, for wider participation of the entire eco-system in Europe, buy-side firms such as corporates, pension plans and insurance companies are increasingly investigating different CCP-buyside access models.
“The repo landscape in Europe is very different from the one in the US and the more fragmented markets need to have specific solutions and services to meet those requirements,” he noted.
Ted will be joining market pros from DRW, DTCC, State Street and Tradeweb; Frank will share the stage with colleagues from Bank of America, Federated Hermes and Sunthay; and Colleen will join fellow experts from GLMX, J.P. Morgan, OSTTRA and RBC Capital Markets at Finadium’s Rates & Repo North America, taking place in New York on November 4. Rates & Repo is a conference for cash investors, dealers, market intermediaries, technology firms and other service providers. Register here for the in-person discussions.