Finadium’s Cleared Repo in Europe conference is just around the corner, and we’re highlighting some of the hot topics attendees can expect to get a deep dive into in Paris on September 17. In this preview teaser, we hear from BNY and Tradeweb about the progress towards building a better European market structure for dealers and clients.
European repo markets remain largely bilateral, with the bulk of the reason being related to clearing costs in the current state-of-play, said Elisabeth Kirby, managing director and head of Market Structure at Tradeweb, who will be co-leading the Pre-trade Credit Checks Across Repo Clearing Platforms workshop.
This contrasts with what’s happening in the US, where, even before the looming clearing mandate, adoption of cleared repo has been gaining steam. In Europe, the traction is for repo platform adoption, with market participants increasingly going direct to dealers and liquidity providers versus agency workflow.
“Over the past 12 months or so, we’ve seen a lot of movement from market participants in Europe away from agency access to repo and towards accessing repo directly,” she said. “We are probably in early innings of some of those clients moving into direct repo participation, but that’s been a notable trend.”
How that will play out as the US mandate comes into force in end-June 2027 remains to be seen, but what seems to be clear is that European firms that transact US Treasury (UST) repo need to understand how they will be impacted, and Kirby believes it is critical to have “guardrails hard coded” into the platforms they are trading on.
Tradeweb, for example, has existing tools and capabilities already built out for swaps and derivatives that can help clients subject to the mandate to trade cleared repo in a way that is compliant with the changing regulatory environment, she noted, pointing to credit checking and post-trade connectivity with clearinghouses in particular.
“In a world where rules are changing, there are probably varying degrees of comprehension and understanding of what those rules mean for each client,” she said. “Having a platform that understands the rules very well and has technological capabilities to ensure that clients are not running afoul of those rules is going to be really important as we move towards these clearing deadlines.”
Fair play
The extra-territoriality of the UST clearing mandate should be viewed from a “level playing field” perspective, said Nate Wuerffel, head of Market Structure at BNY, who will be speaking on the Building a Better European Repo Market Structure for Dealers and Clients panel.
“If you want to participate in the Treasury market, these are the rules of that market, and those rules apply across locations, across the globe,” he said. To help with implementation, the industry has encouraged the US Securities and Exchange Commission to consider various adjustments to the clearing rule, including more flexibility around inter-affiliate exemptions and an exclusion for non-Treasury general collateral repo transactions.
“Those are both important efforts, because it gives flexibility in implementing the rule without undermining the rule (and) without creating opportunities for widespread evasion,” he said. Still, the rule will hit firms’ bottom lines because the trade-offs for risk management and market resiliency are increasing costs to transact in the Treasury market.
This has led to CCPs thinking carefully about the most efficient ways to manage settlement risk in a cost-effective way, said Wuerffel, which has also spurred innovation in clearing models, and he highlighted: “done away” that taps third-party clearers; and access models that can reduce margin and capital costs through netting and lien structures.
“What this means is that the industry (can) meet this mandate from the SEC to centrally clear the market, make it more resilient, but do it in a more cost-effective way,” he said. “BNY’s goal is to help facilitate this process in the most efficient way, make the market more resilient, and also modernize the Treasury market infrastructure at the same time.”
Nate will be joining his colleagues from Axa Investment Managers, Bank of America, and LCH RepoClear on September 17 in Paris (register here) to discuss how a better European repo market structure is building out. Elisabeth will be spotlighting some of the latest developments for repo trading platforms alongside Tradeweb’s Colleen Flynn, managing director for Repo & Money Markets. Cleared Repo in Europe is a conference for European dealers and clients who seek answers on accounting rules, connectivity and how sponsored vs. agency models will work as the complexities of mandatory and non-mandatory repo clearing come into view amid geopolitical uncertainty.