In an analysis published by Richard Comotto, repo market adviser and co-founder and chief product officer at London Reporting House, provided a summary of some main findings from the International Capital Market Association’s (ICMA’s) most recent European repo market survey for H1 2023.
A significant development in the survey results was the recovery of tri-party repo. This cash-driven repo has long been suppressed by QE and its expected recovery last year was derailed when cash investors were spooked by interest rate uncertainty. In June, however, its share jumped to 9.0% from 6.5%.
One element in the recovery of tri-party repo was the continued growth of GC financing (which combines tri-party collateral management with CCP-clearing). The attraction of GC financing has been that it is a source of term repo. Most of this term activity has been on Eurex’s GC Pooling platform, which seems to have recruited buyside and official institiutions who are natural term players.
The other growth story in the survey was voice-brokers. Their share has been in secular decline over the whole history of the survey, with automatic trading systems (ATS) eating more and more of their lunch. But they just won’t lie down and die.
The latest survey saw their share rise to 10% from 9%. One reason was an increase in the number of banks employing voice-brokers. This may have been happened during the SVB and Credit Suisse episodes in March. Voice-brokers typically gain in market stress, as they offer the variable-cost option of being able to immediately expand a dealer’s search for liquidity whenever the market starts to dry up.
Perhaps some dealers have thought it prudent to retain the services of voice-brokers? Another reason that has been suggested for the growth of voice-broking is that they have been busy arranging term OTC trades that are then passed to Eurex Clearing using Eurex Repo and GC Pooling as a portal.