Institutional Investors on Bilateral and Tri-Party Repo: A Finadium Survey
Finadium
February 2013
Finadium has conducted a survey of large institutional cash providers in the repo market to assess risk preferences and expectations on future market stability. The global repo market, sized by Finadium at US$13.78 trillion, continues to undergo adjustments due to bank funding regulations, low interest rates and the emerging need for collateral transformation trades.
Our survey shows that institutions remain interested in the repo market but are working to consider their risk parameters and alternatives as banks face pressures to move towards longer-term funding sources. There is currently a gap between the interests of many large cash repo providers and the requirements of bank repo dealers.
This report is based on two data sources. First, we spoke with 31 large institutional investors in North America, Europe and Asia. Second, we collected data on repo transactions made by US institutional investors from 2007 to the present. These transactions were all executed in individually managed accounts; the credit and duration were set by the institutions themselves and were not subject to 2a-7 or other limitations. In total, we gathered information from institutions with over US$2.8 trillion in assets.
This report has been written for institutional investors, their repo counterparties and service providers to help bridge the gap between institutional needs and the regulatory requirements that have pushed repo providers to make changes post-Lehman. For institutions, the report offers a peer-based analysis of repo investment criteria and thoughts going forward. For repo dealers and service providers, the report offers a candid look at the thinking of the large and important institutional investor cash provider market.
This report is 33 pages with 19 exhibits.
TABLE OF CONTENTS
■ Executive Summary
■ Institutions and the Repo Market in 2013
– Methodology
■ Opinions on the Repo Market
– Governments vs. Corporates and Equities
– Term vs. Overnight
– Tri-party vs. Bilateral
■ Institutional Repo Data: Beyond Money Market Funds
– Treasuries and Agencies
– Corporate Bonds and Equities
– Counterparties
■ Getting to More Secure Footing
– The Scenario of Negative Interest Rates
– Finding a Middle Ground with Banks Offering Repo
■ About the Author
■ About Finadium