Finadium has released a new research report, “Realities of Repo Clearing for the Buy-side.” This report offers a realistic evaluation of what repo clearing offers the buy-side, who is participating and how pricing may be impacted. This report is part of the Finadium Executive Briefing series, providing briefings and analysis to the financial markets industry.
The introduction of repo clearing for the buy-side without a clearing intermediary is an important change in financial markets, but one that comes with some risk. Buy-side firms will soon be asked to participate in repo CCPs as a way for dealers to improve their capital position and benefit from an increased number of potentially nettable transactions. Buy-side firms may or may not see improved pricing, depending on who they transact with, but should see more stable supply than in todayʼs bilateral markets.
Cash investors interested in CCPs should take the time to understand what they are getting into. The risk management policies of CCPs are different than bilateral transactions; some requirements on liquidations could create a liquidity squeeze and require alternate funding sources, and each CCP will be slightly different in their operations and practices. Buy-side firms must also consider their trading and counterparty options when using a CCP vs. conducting a bilateral transaction.
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For non-subscribers, more information on this report and subscription information is available on the Finadium website.